Author Topic: Pay Cash or Car Loan and Invest?  (Read 781 times)

teamzissou00

  • Stubble
  • **
  • Posts: 106
Pay Cash or Car Loan and Invest?
« on: February 22, 2017, 04:57:46 PM »
Hi,

I am looking to buy a new used car soon.  The interest rate on a loan is 2.74%. 

I have $25k in cash, and the car I want will be $18k.

When I crunched the numbers based on an annual return on 25k in the market of 8%, I'd net $2,000 each year.  Financing the car would cost me $493.20 if I just looked at 2.74% on 18k (pretending I never paid down principal).  It's even better in the real math. 

instead of writing an $18k check, should I just finance the car, and sell enough equities to pay the payment each month (using only commission free ETF's)? 

Thoughts?

Hargrove

  • Pencil Stache
  • ****
  • Posts: 717
Re: Pay Cash or Car Loan and Invest?
« Reply #1 on: February 22, 2017, 06:36:07 PM »
Origination fee.

You might as well double the cost for the loan. So no, it's not worth it if you only do it for one year. It's worth it if you do it for the life of the loan (or, well, at least two years).

You're still gambling that the market won't dip in that span if you're putting it into ETFs instead of paying it from income.