Financing Your Vehicle vs. Paying Cash – 2

Let’s take a look at the difference between the borrower and the lender in purchasing just one moderately priced vehicle. Given a very common loan repayment schedule of six years, a huge gap occurs between the two situations.

Here are the two choices:

  • Making vehicle loan payments
  • Taking that very same payment and investing it in the equity market yielding average equity returns over the past 40 years.

The real difference is this. The borrower makes the same payment the lender (investor) does for the exact same time period. When the time period is up, the borrower stops making all payments; so does the investor. At the end of the six years, the borrower has a used vehicle of questionable value.

At the end of six years, the person who chooses not to borrow for a new car or truck, but instead invests the exact same payment, has a total sum of $55,741. This is just for the onetime purchase of just one vehicle.

More detail next time!

Are there any financing horror stories in your past? Your comments appreciated!

Content © Rich Brott, 2011

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