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YOUR RESEARCHPay off car or not?
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Check from my credit union home equity credit line
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Suggestion · Original poster
When I bought my Turbo a few months I used a check from my credit union home equity credit line for the entire amount.
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Your numbers are pre-tax, run the comparison after tax , fee's etc.
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One possible downside of using a HELOC to buy a car (in this case) is one pays this HELOC loan off over many more years than he would pay off a straight up car loan.
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One possible downside of using a HELOC to buy a car (in this case) is one pays this HELOC loan off over many more years than he would pay off a straight up car loan.
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I'm interested in hearing your thoughts on this.
When I bought my Turbo a few months I used a check from my credit union home equity credit line for the entire amount. I then transfered the proceeds from the sale of my '99 Cab and some parked savings on to the balance. This left me owing about $16k which I'm financing at 2%. I have several CDs in various amounts and terms that I could cash in and pay the balance off. The closest would be a $20k that's paying 3% apr.
I'm thinking I'm better off leaving things as they are, paying 2% interest on $16k and making 3% on $20k, rather than paying a penality, cashing in my CD and paying the car off.
What if any benefit would there be to paying the car off?
+1. Just did that when I bought my A6 back in April. The only question I had for the finance manager was, " Can I finance everything?". I just had to pay the taxes.
I like my life simple and I like to pay cash for my toys, or I go without. I'd never use a HELOC for a car.
IMO - The 1% delta isn't even worth me having to write a check out every month !! Lol
I really don't think it matters much either way, do what makes you happy.
+1
You pay taxes on the 3% interest.
BTW... I am not sure on this but I believe the interest for the Heloc are tax deductible. Consult your accountant on this
I think if I had the cash I will pay off the car and forget about the monthly bills. I don't like monthly bills but this scenario you have might different. Rates are so low these days that borrowing money is so cheap that is worth it to leverage you money. Just make sure the money you have is invested wisely... my 2 cents
the extra 100bps on 20k is $200 a year. That said, when you take the penalty into account, you will give up a good bit of interest.
At 2%, I'd probably just leave it alone, but either way, the difference is not a big deal.
Never borrow money to buy cars, they depreciate. So yes, I would pay it off.
I always say to if you have to borrow, buy a different car that you can afford with cash
So you wouldn't take a loan for a car at 50bps?
It comes down to opportunity cost (as in this example).
If you can borrow at 50bps, and earn 400bps on the money you didn't use to buy the car, you end up with a pretty tidy 3.5% gain from taking that loan.
Same answer as most from me. I'd keep anything you have secure at %3. Pay the %2 loan off maybe at double payments if you can, so your effective rate on the original amount is lower than %2 to you.
and most important, enjoy that Turbo, I'm jealous
Pay all mine cash. Couldn't imagine having a car payment. I know some will think "he's one of the 'rich guys' on the boards. It's not that. It's making the decision a long time ago that instead of borrowing car into car, I would always save money for the next purchase.
In simplified numbers (using simple interest calculations), the car is costing you about $320 a year to finance (and this isn't accounting for things like bogus bank charges, etc.). You are making about $600 interest from your CD, which is about $420 after tax. So, all of this soul-searching is for about $100 per year net - seems like a pretty scant return.
I guess there are two approaches here. If you need liquidity because you are in in the U.S. and things are still tough there for you guys, it may be better to keep your current arrangement in place and not cash in your CD as you can save that for a rainy day. On the other hand, there's a nice feeling that comes from not having something encumbered and knowing that you own it free and clear.
Hi Guys, and not to hijack a thread, but in the market we are in, we decided to pay our house off as the best way to "earn more" forgoing morgage interest. Its great to be completely debt free with money you made yourself. (read: not inheirited)
How long will it take you to pay off that HELOC and the $16K portion of it devoted the car.
One possible downside of using a HELOC to buy a car (in this case) is one pays this HELOC loan off over many more years than he would pay off a straight up car loan.
Thus while the HELOC interest is lower, the time over which the interest is paid is longer which means the car portion of the loan costs more.
Sincerely,
Macster.
Thanks for your comments, I'm interested in hearing more.
The car is the only thing on the HELOC and I'm paying just the interest only, less than $30/mo. I have enough cash to pay most of this off without breaking a CD by want to hang on to it for now.
