Car finance situation

[MulLa]

Say if you have to finance a car for $X at a 10% interest. However, you have investments worth $Y (Y>X) netting 15% in return (say in shares which is relatively easy to be cashed out)

Would you:
1. Finance the vehicle because the return on investment is more than enough to cover interest on loan plus extra 5%.
2. Cash out investment worth $X because you do not want to be in debt and paying interest.

Just something that popped into my mind while reading about various new car threads.

 

[msparish]

You'd have to be a fool not to take a guaranteed 10% return on your money. Stocks are no guarantee, and they average no where near 15%.

 

[bctbct]

how do you have high return investments and your credit isnt good enough to get a decent loan rate?

 

[manlymatt83]

Originally posted by: bctbct
how do you have high return investments and your credit isnt good enough to get a decent loan rate?

QFT

 

[MulLa]

Not saying I can't get finance / loan. Just a Hypothetical situation, where you have investments returning better than the loan interest rate, would you avoid debt and reduce your invested principal. Or would you take the loan knowing the return on your investment will more than cover interests on the loan.

 

[Viper GTS]

This question actually does have some merit, though the numbers are obviously unrealistic.

Do you yank your savings from ING to pay off school loans at 3%?

In cases like this the actual monetary difference between the options is frequently so small that it's probably not worth the hassle of dealing with financing, the impact on credit, etc. The biggest reason this is the case is that guaranteed rates are so low that at most you're typically saving a couple of points. When you're only guaranteed 5% the majority of financing is going to fall clearly into the "pay it off now" category.

You have to do the math & decide for yourself, the bottom line isn't always the answer.

Viper GTS