Login


10252010, 11:49 AM  #1 
New Member
1
Rep 11
Posts 
Finance Help
Any finance majors in here willing to crunch some numbers for me?
I'm deciding between 0.9% APR for 36 months or 1.9% APR for 60 months on a $70,000 loan. Considering the money I don't use toward paying off the car can sit in a 3.5% interest bearing account, which would be the better option? 
10252010, 11:57 AM  #2 
Captain
18
Rep 830
Posts
Drives: E90
Join Date: Jul 2010
Location: Houston, TX

just based on time value of money and opportunity cost alone, take the 60 months
__________________
2011 E90 M3 6mt AW/Speed Cloth  ZCP, Moonroof, noniDrive  PCD 12/9/10 Painted reflectors, matte black grills/gills, RemoteKey+, Homelink/compass retrofit, Passport MAX2 Hardwire, GP Thunder 8500K, modmy3 LED interior, ebay VRS CF Front Lip, Dinan Mufflers, HRE P40 19" Satin Charcoal, Bridgestone S04 255/295 
Appreciate
0

10252010, 12:02 PM  #3 
Colonel
328
Rep 2,668
Posts 
Agreed, and please tell me where you're getting 3.5% interest in a savings account? 5 year CD rates are roughly 1.6% and highyield money market accounts are paying 1.3% or less...
__________________
2011 Space Grey E90 M3, DCT, Comp. Pkg.
1997 Z3 2.8, Artic Silver, Tanin Red interior, MT 1974 2002tii, Inka, 5 sp manual BMWCCA # 327475 
Appreciate
0

10252010, 12:05 PM  #4 
New Member
1
Rep 11
Posts 
ah that was purely speculation. I haven't looked at savings account rates since before the recession (I was getting 5% with etrade). 3.5% seemed like a fair average between CD's and mutual fund returns.

Appreciate
0

10252010, 12:11 PM  #5 
Ski bum
118
Rep 6,208
Posts 
You'll pay about $3432 over 60 mos in interest or $980 over 36 mos. That's money down the drain. I appreciate that you'd invest the difference in theory, but will you really? And getting better than 2% will be tough.
If you can handle the extra $700$800 mo for the 36 mos, I'd go that route.
__________________
1999 e46 328i Ti Silver / Black[retired] 2007 e90 335xi Jet Black / Black[retired] 2011 e70 X5 35d Vermillion Red / Cinnamon 2011 e92 M3 LeMans / Fox Red extended 
Appreciate
0

10252010, 12:17 PM  #6  
Lieutenant Colonel
50
Rep 1,509
Posts 
Quote:
__________________
2011 E92 JB/BL/DCT>80K Miles
2015 F80 SS/SO/DCT 

Appreciate
0

10252010, 01:02 PM  #7 
Brigadier General
131
Rep 3,980
Posts 
Either way, less months will be more money in your pocket in the long run...
__________________
BMW E46 M3 Black Too many mods m3e46freak@yahoo.comfor all euro parts!! ebay/craigslist verified/ m3post/e46fanantics/m3forum/zpost/bimmerforum 
Appreciate
0

10262010, 12:04 PM  #8  
Second Lieutenant
8
Rep 278
Posts 
Quote:
__________________


Appreciate
0

10262010, 05:44 PM  #9  
Captain
18
Rep 830
Posts
Drives: E90
Join Date: Jul 2010
Location: Houston, TX

Quote:
60mo@1.9% 36mo@0.9% Monthly PMT $1,223.88 $1,971.54 Difference $747.66 Total Payment $73,433.00 $70,975.50 Difference $2,457.50 By saving the difference in payments every month (the $747.66) into an account for 36 months, you get the following Saved PMT diff @ 1% each month $27,312.01 Total difference in PMT for 36 months $26,915.76 Earnings $396.25 Invested PMT diff @ 5% each month $29,410.03 Total difference in PMT for 36 months $26,915.76 Earnings $2,494.27 So in theory, if you saved the payment difference every month for 36 months, and got a consistent 5% return, the difference would be negligible, though nowadays it does take some effort to earn 5%
__________________
2011 E90 M3 6mt AW/Speed Cloth  ZCP, Moonroof, noniDrive  PCD 12/9/10 Painted reflectors, matte black grills/gills, RemoteKey+, Homelink/compass retrofit, Passport MAX2 Hardwire, GP Thunder 8500K, modmy3 LED interior, ebay VRS CF Front Lip, Dinan Mufflers, HRE P40 19" Satin Charcoal, Bridgestone S04 255/295 

Appreciate
0

10282010, 12:14 AM  #10  
Ski bum
118
Rep 6,208
Posts 
Quote:
Quote:
So, investing $747.66/mo, every month, for 60 months, at an even 5% APY, would yield $50,845.43. But where is this 5% APY really going to come from? Sure, you could put it in some type of investment vehicle, but that's an optimistic RoR for the next 5 years. I'd use 3% right now for a typical, average Joe stock fund. Which still yields $48,333.76. THAT assumes no drops in the fund, no fees, taxes, etc. However, the question I asked is will the OP really do this? But lets look at another option  say the OP buys the car over 36 mos, making no additional investments beyond what he/she is doing today. Then, at the end of 36 months, the OP puts the entire $1971.54 monthly car payment into some investment earning 5% for 2 years. At the end of the two years, they'd have $49,655.05 and a car worth somewhere between $35$40k. Now you pay cash for a new M3, drive it for 5 years, and keep that investment going. You'll have another $50k in five years, another car still worth $45k+. Using this method you'll pay cash for every car you buy, and have the flexability of no car payments. Back to the current scenario: Figure in the 3 year period for the car payments, in which the OP would save $2,457 in interest, added to the $49,655.05, and the OP would have $52,112. That's $1266 more than if he/she did the 60 month loan and invested the difference. Do the 36 months if you can afford the payment.
__________________
1999 e46 328i Ti Silver / Black[retired] 2007 e90 335xi Jet Black / Black[retired] 2011 e70 X5 35d Vermillion Red / Cinnamon 2011 e92 M3 LeMans / Fox Red extended Last edited by TurboFan; 10282010 at 12:21 AM. 

Appreciate
0

10282010, 12:53 AM  #11  
First Lieutenant
11
Rep 332
Posts 
Quote:
I could have bought the car outright if I wanted to, but financing just makes the most sense. I'll be upside down in my car for likely 23 years+ (more so because I have a balloon payment). But combined with GAP insurance, that difference is insured should my car ever be totaled or stolen. Then the money doesn't come out of my pocket, which it would if you owned it outright. I'm a savvy investor, so I have no problem making 5% a year on my money. Therefore I'd rather have the debt. You can easily find bonds (not treasuries) that pay that. There's of course some risk depending on the rating, and it's not the same security as a CD, but it's very doable. I've had for many years a taxfree municipal city bond that pays me approximately 7.75%. Or you could chose lowerrisk ETFs (which trade like stocks) that have higher dividends. I'd recommend PZA  it has generally low volatility compared to the overall market and the current yield is 4.14%. There's some risk of course, but it works for my financial situation. Last edited by michaelw9; 10282010 at 01:47 AM. 

Appreciate
0

Post Reply 
Bookmarks 
Thread Tools  Search this Thread 

