Author Topic: Using low borrowing rates to my advantage.  (Read 1696 times)

firefergy

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Using low borrowing rates to my advantage.
« on: March 09, 2013, 10:21:25 AM »
Hey everyone, I recently purchased a used prius.  I replaced my tundra and now will be saving $3000 per year in fuel and maintenance.  I had cash to buy the prius but when they offered me 1.9% for 5 years I could not resist.  I figured I could invest the purchase price plus interest on the loan in my lending club account.  I will use the monthly income to pay off the loan and reinvest the remainder.  If I can maintain at least 10% return I will net about $11000 and have a paid off car in five years.  What do y'all think of this plan?  It seems silly to tie up cash when borrowing is so cheap.  Cheers.

arebelspy

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Re: Using low borrowing rates to my advantage.
« Reply #1 on: March 09, 2013, 08:58:57 PM »
I like using leverage like this in the accumulation phase.

Assuming you had the money to purchase cash and made that decision deliberately, there is no risk beyond the fact that you might not get returns that outmatch the rate you're paying.  A greater return than 1.9% is a quite decent assumption, IMO, so it's worth taking.

Probably no reason to jump through such hoops once you have enough (just as doing credit card balance transfers are eventually pointless), but during the accumulation phase, if you're buying the car anyways, it seems like a great move to me.
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Kazimieras

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Re: Using low borrowing rates to my advantage.
« Reply #2 on: March 11, 2013, 11:55:42 AM »
Good call with having your money earn a better rate than the 1.9% you get! Although at 10% remember that your investment is likely not risk free. If you can afford a somewhat worst-case scenario of imaging your investment returns 0% after the term of the loan, and you can still pay it off - it is likely worth the gamble.