Low interest loan instead of paying cash from investments?

[sailor]

Also keep in mind that some automakers also frequently have incentives ("cash back") for cash buyers.
But it's all model dependent, so worth following these for a while before purchase.

 

[Katsmeow]

We did take a low interest loan on a car. For retirees there is another factor that can come into play. At the time, almost all of your cash was in tax deferred accounts. So, paying cash for the car meant taking money out of the IRA and paying tax on the withdrawal. For that year, we were at a higher marginal tax rate than I anticipated we would be in this year. So, we would save considerably by taking a car loan, even if we held the loan to maturity.

Oh, the price of the car did not vary depending upon whether we took out a loan or didn't take out the loan.

 

[gauss]

Not everybody can join it. I can not. Show me place that pays 2% CDs and is available to everybody.

eta2020,

I think if you can open a bank account in the U.S. then you can probably join PenFed.

Sure the main ways of qualifying are defense industry related, but I think that almost anyone can join the NMFA for a one time small fee. That is what I did to access PenFed's very competitive home loan refi's and HELOCs.

-gauss

 

[HappyOutsourced]

Thank you all for your input. Very intelligent discussion here! There are a lot of things mentioned I had not considered.
I particularly had not thought about the short time period of the loan as opposed to the overall positive move of the market over longer periods of time. I suppose the market could drop just as you got the loan which means you'd be pulling money out to make the payments at a really bad time. And 5 years is too short a time to expect a huge recovery. A 30 year mortgage would be a different story.
But as for me - I like the peace of mind of being debt free too.
I love this forum and am learning a lot!

 

[HappyOutsourced]

Oh, I'd like to know about those CDs too. Ah, the nostalgia of 2% ...such memories....

 

[jimnjana]

Not everybody can join it. I can not. Show me place that pays 2% CDs and is available to everybody.

anybody can join, once you become a member of a non profit for 20 bucks. the link is on their website.

 

[NW-Bound]

I've mentioned bankrate.com.

For 3-yr CD: PenFed 2.02%, Intervest Bank 1.45%, ...

For 5-yd CD: PenFed 2.02%, Barclays 2.00%, Everbank 1.96%, GE 1.95%, etc...

 

[Gearhead Jim]

Since we hadn't made a major purchase on credit for over a decade, we took the low interest loan from Toyota to buy my wife's current car 3 years ago. Partly to help our credit score, and partly because I believed our money would earn more than the Toyota interest.

So far, our investments have been waay ahead of the interest.

But generally, I hate borrowing money. This may be our last big credit purchase, ever.

 

[HFWR]

Since we hadn't made a major purchase on credit for over a decade, we took the low interest loan from Toyota to buy my wife's current car 3 years ago. Partly to help our credit score, and partly because I believed our money would earn more than the Toyota interest.

So far, our investments have been way ahead of the interest.

But generally, I hate borrowing money. This may be our last big credit purchase, ever.

+1

 

[karluk]

The way I do accounting is to include the value of all our debts as a negative item subtracted from our fixed income investments (with "fixed income" consisting primarily of the stable value fund in our retirement accounts). In my view this approach has two hightly beneficial consequences. First it prevents me from thinking that our net worth is higher than it actually is - if I make a major purchase, the cost is immediately deducted from our investment portfolio, even if it will take years to fully pay off a loan. Secondly, I have an easy way of calculating whether I'm better off taking the loan or paying cash. Roughly speaking, I'm better off if the interest rate on the loan is lower than the yield on the stable value fund, although there are also tax consequences that can swing the benefit in favor of the loan.

I calculate I've benefited by tens of thousands of dollars over the years by taking low cost loans. Most of them have been zero percent offers on credit cards, but I've also taken two car loans. One of them was a 0.99% three year loan and the other was 0% for five years.