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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 308881  
Subject: Re: Using my credit to finance a car Date: 5/20/1998 6:16 PM
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Tony wrote:

"Zuffy,

But there are some excellent deals around at dealerships now, many offering 1.9% financing. So, you may even be better off not using a credit card afterall.

Good luck, and let us know what you find out.

Tony
...but I still am..."


Zuffy,

You want some "creative financing" ideas? Let me help you. First skip MBNA. They are the ones that bury that october 98 expiration date on the back of their offer in teenie tiny print.

Three options.

This is the conservative, safe approach.

First, your cash in the broker's account (sweep account) should be earning interest. Mine earns about 5% in a sweep fund.

Convert the stock you had planned to use to cover the cost of the car to cash in the amount of the vehicle.
Place that amount in an interest-free sweep account. (Municipal bond mutual fund- most brokers offer one). That pays about 4%. Then take the 1.9% financing, putting only the minimum down on the car. Over time, you will find it is a much better deal to take the financing at 1.9% than the $1000-$1500 rebate the dealer offers. You will earn 2% in excess of the amount you pay to finance the car. Each month, use the checkwriting feature on the brokerage account to make the car payments. You can actually make money using the company's discount financing.

Second, very risky approach. This is the one I used to buy our van for the kids.

Again, take advantage of the dealer's 1.9% financing and put only the minimum down for the car.

Using the equity in your stocks, set up a margin account. The rate of interest on most margin accounts is 8.25%. Sell monthly covered calls on tech stocks, earning the amount needed from the premium paid for the car payment each month plus extra for taxes. That money goes into the sweep account and earns interest until you need to write a check on it. On months when you can't make the payment on calls, you go into margin, and pay at most 8.25% interest for that month on the car payment for the month. If you can sell calls and earn the car payment each month, you will pay for the car without even having to sell the stocks unless you are called out, in which case you can buy back in and do it again.

A third approach is to cash in the stock, and open a CD at a bank. They will give you about 6% depending on how long you leave it in. Then take out a passbook loan for the amount in the CD. The bank gives this usually at 5%, so with the interest you get from the CD during the loan, you actually are only paying about 1% for the loan. Then use the proceeds to buy the car. In effect, you just made yourself a very cheap loan.

Just some ideas! :)



Foolish Venturist
and Equity Financing, Private Placement Fool too!
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