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Author: FoolishVenturist Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 311070  
Subject: Re: Using my credit to finance a car Date: 5/20/1998 11:21 PM
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"I have to disagree with you and side with TMF2Aruba on this one. It just ain't so.

You need to compute the APR the same way you would when comparing mortage rates (when loan origination fees are figured in)."

I'd like to see your figures, because when I calculated it myself, it was much better to take the financing then to take the $1000 rebate Ford was offering.

Plus, for purposes of your argument you are assuming that the consumer HAS the entire price of the car to set down on the table. Remember, you don't get ANY rebate unless you pay CASH for the car. They give you either or, but not both.

Moreover, you are not taking into consideration the amount one can earn if you invest the money in the stock market during good times, or simply earn 5% on a broker's sweep account if the money is in cash.

As I recall, the use of their money for financing a $26,000 van at 4.8% SIMPLE financing (the car dealers give you simple interest financing) amounted to $2104.31 in interest over 48 months. The payments were
$573 per month. So it costs me $2104 to use their $26,000 for 4 years. Meanwhile, to date, by investing the money, I have made about a 20% return, not to mention that I have used the very risky and tricky method of selling calls to make the payments, thereby retaining the $26,000 principal. I could have saved $1000 on the price of the vehicle, true, but then I would lose the use of the $26,000 forever. No investments, no 20% return. I based my decision not just on the relative costs of the vehicle adding in the lost $1000 rebate, but the value of the money if wisely and skillfully invested, and determined, in my case, I was better off with the 4.8% financing.

This does not mean it is the right way to go for everyone. I think that consensus does indicate that the majority of the people here think that using the MBNA card is not a preferable option.

I think the safest option is to make oneself the passbook loan on the money, and pay it back at 1% interest. Were it not for the fact that I thought I could do better in the stock market given the history of the past year, it is the option I would have chosen myself.

Foolish Venturist
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