Pay in cash or take out a loan?

**garci** · June 18th, 2009 09:16 AM

I'm considering buying a new MPV and I'll have to shell out around an additional P800k after selling my current ride.

Is it a good idea to take out a loan for that amount if you have cash available?

My money is now in a mutual fund but it's not earning much because of the economy. Nasa around 5-6% lang effective interest rate nya but I'm hoping it would turn around in the future.

Ano kaya mas mabuti, kunin ko ang amount sa mutual fund and pay in cash or take a 4 or 5-yr loan and keep them in mutual fund and hope it will grow in the long term?

**ghosthunter** · June 18th, 2009 09:28 AM

minimize your "loss", pay in cash

**tidus1203** · June 18th, 2009 09:29 AM

Pay in cash! Ito lang masasabi ko, no investments with decent safety can ever ever beat the interest rate on a car loan. Unless you trade currencies and commodities with high leverage then its possible. But your simple stock/bond mutual fund will never ever beat the interest rate charged by a car loan which is like 30% and go as high as 45%. So if you really need to buy the car just pay cash it will save you money in the long run.

**1D4LV** · June 18th, 2009 09:42 AM

Originally Posted by garci

I'm considering buying a new MPV and I'll have to shell out around an additional P800k after selling my current ride.

Is it a good idea to take out a loan for that amount if you have cash available?

My money is now in a mutual fund but it's not earning much because of the economy. Nasa around 5-6% lang effective interest rate nya but I'm hoping it would turn around in the future.

Ano kaya mas mabuti, kunin ko ang amount sa mutual fund and pay in cash or take a 4 or 5-yr loan and keep them in mutual fund and hope it will grow in the long term?

best solution there is:

- defer buying the car.
- get a second hand unit which does the same purpose of the mpv that you are planning to get

consider this, since yung MF mo is only earning 6%, you should be spending somewhere below that for you to earn.

getting a new car would entail you to have around 8% PA interest. so if you are earning 6% sa investments mo and if you are paying 8% dun sa oto mo, lugi ka na.

also consider the depreciation costs in getting a brand new vehicle. first year is 20-25% kaagad.

**garci** · June 18th, 2009 10:09 AM

Originally Posted by tidus1203

Pay in cash! Ito lang masasabi ko, no investments with decent safety can ever ever beat the interest rate on a car loan. Unless you trade currencies and commodities with high leverage then its possible. But your simple stock/bond mutual fund will never ever beat the interest rate charged by a car loan which is like 30% and go as high as 45%. So if you really need to buy the car just pay cash it will save you money in the long run.

Thanks, but this 30-45%, correct me if I'm wrong is for the 4-5 year term? so it's around 7.5 to 9% per annum. My investment before the economic crunch was earning more than 10% kaya medyo naisip ko if it's worth keeping it there and hope for the best while maintaining my liquidity.

Sorry, wala ako masyadong idea about loans. 1st time ko ito kung sakali.

**userfriendly** · June 18th, 2009 10:46 AM

If you can pay in cash, its the cheapest.

If you really need to take out a loan, go straight to the bank. They are cheaper than the car dealer financing.

I compared the inhouse financing offered by the sales agent vs bdo car loan for a 3 year, 644,800 peso loan. Bank was cheaper by almost 63,000 pesos. Bdo was offering 16.58% interest rate.

Dealers mark up the chattle mortgage, insurance, interest rate etc...

**tidus1203** · June 18th, 2009 11:55 PM

Originally Posted by garci

Thanks, but this 30-45%, correct me if I'm wrong is for the 4-5 year term? so it's around 7.5 to 9% per annum. My investment before the economic crunch was earning more than 10% kaya medyo naisip ko if it's worth keeping it there and hope for the best while maintaining my liquidity.

Sorry, wala ako masyadong idea about loans. 1st time ko ito kung sakali.

Yeah its for the duration of the loan. But that is CONSTANT and you will have to pay for it regardless of the economy. Stock market returns are not CONSTANT and its always funny that when a person needs to withdraw its always on a bad timing (usually the prices dip down) then after withdrawal the next day sabay akyat

I have been in this business for 5 years now and I tell you NEVER EVERY RELY on unsure returns to pay up for 100% sure obligations! Most of time palpak! Kaya me, I make a living off the markets. Kaya I never ever take loans all my transactions are paid in cash para sure ako bayad na ako regardless if I make money or not.

**tidus1203** · June 19th, 2009 12:12 AM

Also I want to add this, its very important...

Remember, your monthly amortizations is FIXED and CONSTANT. Your investments aside from FLUCTUATING returns (as mentioned above) your principal (the life blood of the investment) declines over time since you are going to withdraw from it to pay the loan. As your prinicpal goes down, your returns also goes down proportionally with it. So probably at the middle of the loan term (assuming you get 10% returns and your loan us 7%) you are going to start losing money since your principal while still earning 10% is getting smaller and the returns are smaller as well.