JSolo
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I couldn't find a thread for this, so maybe this will help.
I've had a private conversation with another member but thought this might be useful to others.
For the example consider $40K car loan at 0% for 5 yrs vs the $1000 or $1500 rebate. The 40K is the amount in consideration after downpayments/discounts.
Investing 40K in something secure that pays 1% would yield $2040 in interest over the 5 years. But, this isn't entirely accurate because this 40K is reduced by ~$670 for each monthly payment.
Here's a neat site. Computes compounded interest with a positive or negative contribution.
www.investor.gov
So when the car is paid off, I would have profited $850. I picked $40K as that was roughly the amount left after the credit card down payment (also at 0% apr indefinitely). Actually $39K, but rounded up to 40K for simplicity.
So.... That means effectively it would be a wash with the $1K rebate ($920 after considering taxes). $920 vs $845. In fact I'd overpay slightly. Now, if that rate goes up then it's a whole different ball game. Even 1.25% net ~$100 more. I don't see rates going up in the next year or two at all, so gambling on years 3, 4, 5 for increase.... ¿? If you're comfortable investing in more riskier investments, then returns could be greater.
OTOH, taking the rebate requires a car loan at some inflated rate (even with excellent credit). Lets assume you do this but then refi immediately at a lower rates. Best I could get on a refi was 1.99% (@penfed). Now, considering $39K @1.99% for 5 years results in $2000 in interest paid over the life of the loan. So now you've overpaid by a gran. This gets even more complicated when you consider the value of the $1000, accounting for inflation
My take away here is that the 0% with the car costing $1K more is still a better value in the long run.
I think the rebate only makes sense if you pay the loan off right away.
I've had a private conversation with another member but thought this might be useful to others.
For the example consider $40K car loan at 0% for 5 yrs vs the $1000 or $1500 rebate. The 40K is the amount in consideration after downpayments/discounts.
Investing 40K in something secure that pays 1% would yield $2040 in interest over the 5 years. But, this isn't entirely accurate because this 40K is reduced by ~$670 for each monthly payment.
Here's a neat site. Computes compounded interest with a positive or negative contribution.
Compound Interest Calculator | Investor.gov
Determine how much your money can grow using the power of compound interest.
So when the car is paid off, I would have profited $850. I picked $40K as that was roughly the amount left after the credit card down payment (also at 0% apr indefinitely). Actually $39K, but rounded up to 40K for simplicity.
So.... That means effectively it would be a wash with the $1K rebate ($920 after considering taxes). $920 vs $845. In fact I'd overpay slightly. Now, if that rate goes up then it's a whole different ball game. Even 1.25% net ~$100 more. I don't see rates going up in the next year or two at all, so gambling on years 3, 4, 5 for increase.... ¿? If you're comfortable investing in more riskier investments, then returns could be greater.
OTOH, taking the rebate requires a car loan at some inflated rate (even with excellent credit). Lets assume you do this but then refi immediately at a lower rates. Best I could get on a refi was 1.99% (@penfed). Now, considering $39K @1.99% for 5 years results in $2000 in interest paid over the life of the loan. So now you've overpaid by a gran. This gets even more complicated when you consider the value of the $1000, accounting for inflation
My take away here is that the 0% with the car costing $1K more is still a better value in the long run.I think the rebate only makes sense if you pay the loan off right away.
