BMW M3 Forum (E90 E92)

BMW Garage BMW Meets Register Search Today's Posts Mark Forums Read


Go Back   M3Post - BMW M3 Forum > M3 (E90 / E92 / E93) > New and Preowned M3 Pricing, Ordering, Tracking / European Delivery / Dealer Reviews
 
GetBMWParts
Post Reply
 
Thread Tools Search this Thread
      10-25-2010, 10:49 AM   #1
furolan6
New Member
 
Drives: 2011 e93
Join Date: Oct 2010
Location: Austin, TX

Posts: 11
iTrader: (0)

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?
furolan6 is offline  
0
Reply With Quote
      10-25-2010, 10:57 AM   #2
quiksi
Captain
 
quiksi's Avatar
 
Drives: E90
Join Date: Jul 2010
Location: Houston, TX

Posts: 742
iTrader: (1)

Garage List
Send a message via AIM to quiksi
just based on time value of money and opportunity cost alone, take the 60 months
__________________

2011 E90 M3 6mt AW/Speed Cloth - ZCP, Moonroof, non-iDrive - PCD 12/9/10
Painted reflectors, matte black grills/gills, RemoteKey+, Homelink retrofit, V1 Hardwire, GP Thunder 8500K, modmy3 LED interior, VRS Replica CF Front Lip, Dinan Mufflers, HRE P40
quiksi is offline   Taiwan
0
Reply With Quote
      10-25-2010, 11:02 AM   #3
kscarrol
Colonel
 
Drives: 2011 E90 M3
Join Date: Jun 2010
Location: New Orleans, LA

Posts: 2,043
iTrader: (0)

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 high-yield money market accounts are paying 1.3% or less...
__________________
Current: 2011 Space Grey E90 M3, DCT, Comp. Pkg., Conv. Pkg., everything but Cold Weather Pkg!
Gone: 2008 550, Space Grey, Sports Package, Sport Auto Transmission.
Sold: 2004 545i (U.S.), Steptronic, Silver Gray.
kscarrol is offline   United_States
0
Reply With Quote
      10-25-2010, 11:05 AM   #4
furolan6
New Member
 
Drives: 2011 e93
Join Date: Oct 2010
Location: Austin, TX

Posts: 11
iTrader: (0)

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.
furolan6 is offline  
0
Reply With Quote
      10-25-2010, 11:11 AM   #5
TurboFan
Ski bum
 
TurboFan's Avatar
 
Drives: sideways
Join Date: Aug 2007
Location: Knee deep in the pow

Posts: 6,207
iTrader: (8)

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
TurboFan is offline  
0
Reply With Quote
      10-25-2010, 11:17 AM   #6
sameh
Major
 
sameh's Avatar
 
Drives: 2011 E92 M3 DCT JetBlk
Join Date: Aug 2010
Location: NC

Posts: 1,466
iTrader: (0)

Quote:
Originally Posted by TurboFan View Post
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.
Well said, agree 100%
__________________
2011 E92 BatMobile JtBlk/Blk/Blk CF
sameh is offline   United_States
0
Reply With Quote
      10-25-2010, 12:02 PM   #7
donovan
Brigadier General
 
donovan's Avatar
 
Drives: E92 m3 AW, light package
Join Date: Aug 2008
Location: le' Murica

Posts: 3,438
iTrader: (12)

Either way, less months will be more money in your pocket in the long run...
__________________


e46 m3 Black
Too many mods
donovan is offline   Germany
0
Reply With Quote
      10-26-2010, 11:04 AM   #8
rominl
Second Lieutenant
 
Drives: M3
Join Date: Jan 2009
Location: Orange County, CA

Posts: 277
iTrader: (0)

Quote:
Originally Posted by TurboFan View Post
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.
agreed ++
__________________
rominl is offline  
0
Reply With Quote
      10-26-2010, 04:44 PM   #9
quiksi
Captain
 
quiksi's Avatar
 
Drives: E90
Join Date: Jul 2010
Location: Houston, TX

Posts: 742
iTrader: (1)

Garage List
Send a message via AIM to quiksi
Quote:
Originally Posted by TurboFan View Post
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.
Here's some quick calculations
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, non-iDrive - PCD 12/9/10
Painted reflectors, matte black grills/gills, RemoteKey+, Homelink retrofit, V1 Hardwire, GP Thunder 8500K, modmy3 LED interior, VRS Replica CF Front Lip, Dinan Mufflers, HRE P40
quiksi is offline   Taiwan
0
Reply With Quote
      10-27-2010, 11:14 PM   #10
TurboFan
Ski bum
 
TurboFan's Avatar
 
Drives: sideways
Join Date: Aug 2007
Location: Knee deep in the pow

Posts: 6,207
iTrader: (8)

Quote:
Originally Posted by quiksi View Post
Here's some quick calculations
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
Ok, that's what I said, in more words

Quote:
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%
Well, to run this you need it over 60 months. If he does the 36 month loan, he's not making any additional investments, in theory, with the payment difference.

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; 10-27-2010 at 11:21 PM.
TurboFan is offline  
0
Reply With Quote
      10-27-2010, 11:53 PM   #11
michaelw9
Second Lieutenant
 
Drives: 2011 E92 M3 Interlagos
Join Date: Aug 2010
Location: Oakland, CA

Posts: 245
iTrader: (0)

Quote:
Originally Posted by furolan6 View Post
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?
I just financed about $72~k and I went with the 1.9% for 60 months on a BMW Select loan. To me, 1% difference is not that much, and time value of money plays a bigger factor.

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 2-3 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 tax-free municipal city bond that pays me approximately 7.75%.

Or you could chose lower-risk 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; 10-28-2010 at 12:47 AM.
michaelw9 is offline  
0
Reply With Quote
Post Reply

Bookmarks

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump


All times are GMT -5. The time now is 06:09 PM.




m3post
Powered by vBulletin® Version 3.7.0
Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
1Addicts.com, BIMMERPOST.com, E90Post.com, F30Post.com, M3Post.com, ZPost.com, 5Post.com, 6Post.com, 7Post.com, XBimmers.com logo and trademark are properties of BIMMERPOST