I've been playing around with numbers a lot this weekend, looking at different loan terms and interest rates.
I've come down to one fundamental question: which is better:
Option (a) results in a shorter loan term at lower interest.
With option (b) I can likely earn more on the investment, despite the higher interest rate.
Option (b) can look VERY good on paper if you look at 7-8 year loans vs 7-8 year ROI, even assuming only 6% ROI. However, this option means a small down payment on the car, and small monthly payments, thus the loan will be upside down for probably the first 5-6 years. In that case selling the car during those years means pulling the investment $$ early, possibly wiping out the investment earnings. Although I plan to keep my MS for many years, being "trapped" like this could be annoying.
And of course we never know what the stock market will do, investments can go either way.
I've come down to one fundamental question: which is better:
a) to make a large down payment, get 5 year loan <2%
b) to invest the down payment, get 7-8 year loan at <3.5%
b) to invest the down payment, get 7-8 year loan at <3.5%
Option (a) results in a shorter loan term at lower interest.
With option (b) I can likely earn more on the investment, despite the higher interest rate.
Option (b) can look VERY good on paper if you look at 7-8 year loans vs 7-8 year ROI, even assuming only 6% ROI. However, this option means a small down payment on the car, and small monthly payments, thus the loan will be upside down for probably the first 5-6 years. In that case selling the car during those years means pulling the investment $$ early, possibly wiping out the investment earnings. Although I plan to keep my MS for many years, being "trapped" like this could be annoying.
And of course we never know what the stock market will do, investments can go either way.
