Paid off Z?
02-09-2005, 05:33 PM
#61
Ok, so the car is going to cost you $33968.14 to finance over 5 years.
If you take your 30K in cash and dump it in the bank and DON'T TOUCH IT for 5 years where it earns 5% compounded monthly, you would have $38,500, so you would in fact have about $4500 left. BUT, you've said that we're drawing $566.41 out of the account every month, so you're constantly eating away at your interest-earning principle at a greater rate than you're earning interest. I didn't go so far as to do that math, but I'll guess that you'd eat enough of the principle up to reduce your earning potential to the point that the various scenarios result in about the same amount of money/saved.
If you can find a calculator that will let you calculate a 30K initial investment, earning 5% with a monthly deduction of $566.41, let me know what you come up with at the end of 5 years. I'll bet it ain't much, in fact, you might just run out before you complete the 60 months.
If you take your 30K in cash and dump it in the bank and DON'T TOUCH IT for 5 years where it earns 5% compounded monthly, you would have $38,500, so you would in fact have about $4500 left. BUT, you've said that we're drawing $566.41 out of the account every month, so you're constantly eating away at your interest-earning principle at a greater rate than you're earning interest. I didn't go so far as to do that math, but I'll guess that you'd eat enough of the principle up to reduce your earning potential to the point that the various scenarios result in about the same amount of money/saved.
If you can find a calculator that will let you calculate a 30K initial investment, earning 5% with a monthly deduction of $566.41, let me know what you come up with at the end of 5 years. I'll bet it ain't much, in fact, you might just run out before you complete the 60 months.
02-09-2005, 05:44 PM
#62
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you can put it in a mutual fund that follows the S&P500 and beat 5% easy.
my TI83 will do that calculation for me and if you give me a a few minutes I can do it in excel. But if you set it to the same percent as the loan your going to get $0. However if you can invest at a rate higher than the loan you will always come out ahead with financing. drift claimed a 23% return which is too high to assume everyone can do that. I say 10% which alot of people would say is very conservative.
my TI83 will do that calculation for me and if you give me a a few minutes I can do it in excel. But if you set it to the same percent as the loan your going to get $0. However if you can invest at a rate higher than the loan you will always come out ahead with financing. drift claimed a 23% return which is too high to assume everyone can do that. I say 10% which alot of people would say is very conservative.
Last edited by hypeiv; 02-09-2005 at 05:56 PM.
02-09-2005, 05:55 PM
#63
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In excel you use the FV (future value) calculator. This will give you future value of an account.
Open a new spreadsheet and in an empty feild type in:
=FV( 10%/12 , 60, -566.14, 30000)
10% is the yearly rate of return on the investment so I divide it by 12 to get the monthly rate. For the numbers below this is the value I changed but don't forget to divide by 12.
60 is the number of months.
-566.14 is how much I take out each month.
30000 is the present value of the account.
at 4% return you lose $904.61
at 5% return you lose $0.20 financing
at 6% return you gain $965.90 financing
etc
a pretty conservative mutual fund can get you 9% with minimal risk and almost any financial advisor can beat 5% per year over the span of 5 years.
Open a new spreadsheet and in an empty feild type in:
=FV( 10%/12 , 60, -566.14, 30000)
10% is the yearly rate of return on the investment so I divide it by 12 to get the monthly rate. For the numbers below this is the value I changed but don't forget to divide by 12.
60 is the number of months.
-566.14 is how much I take out each month.
30000 is the present value of the account.
at 4% return you lose $904.61
at 5% return you lose $0.20 financing
at 6% return you gain $965.90 financing
etc
a pretty conservative mutual fund can get you 9% with minimal risk and almost any financial advisor can beat 5% per year over the span of 5 years.
Last edited by hypeiv; 02-09-2005 at 05:57 PM.
02-09-2005, 06:05 PM
#64
Originally posted by hypeiv
In excel you use the FV (future value) calculator. This will give you future value of an account.
Open a new spreadsheet and in an empty feild type in:
=FV( 10%/12 , 60, -566.14, 30000)
10% is the yearly rate of return on the investment so I divide it by 12 to get the monthly rate. For the numbers below this is the value I changed but don't forget to divide by 12.
60 is the number of months.
-566.14 is how much I take out each month.
30000 is the present value of the account.
at 4% return you lose $904.61
at 5% return you lose $0.20 financing
at 6% return you gain $965.90 financing
etc
a pretty conservative mutual fund can get you 9% with minimal risk and almost any financial advisor can beat 5% per year over the span of 5 years.
In excel you use the FV (future value) calculator. This will give you future value of an account.
Open a new spreadsheet and in an empty feild type in:
=FV( 10%/12 , 60, -566.14, 30000)
10% is the yearly rate of return on the investment so I divide it by 12 to get the monthly rate. For the numbers below this is the value I changed but don't forget to divide by 12.
60 is the number of months.
-566.14 is how much I take out each month.
30000 is the present value of the account.
at 4% return you lose $904.61
at 5% return you lose $0.20 financing
at 6% return you gain $965.90 financing
etc
a pretty conservative mutual fund can get you 9% with minimal risk and almost any financial advisor can beat 5% per year over the span of 5 years.
).I used to work for a financial planner, and we were limited by the SEC to using 12% as a max return when calculating earning scenarios for clients. I realize there is better to be had, and that even at 12%, you'd make money with your 30K over 5 years. It's fun to work through scenarios like this anyway.
Think we've beat it to death?
02-09-2005, 06:26 PM
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Originally posted by kcobean
Think we've beat it to death?
Think we've beat it to death?
02-09-2005, 08:59 PM
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Also before you finance the car they run your credit report and approve you based on what comes up. If you put a huge down payment on your credit card after they run the credit report your are kind of getting a loan without showing all your liabilities. That's what they told me when I tried to put the deposit on my credit card so I could rack up the reward points.
Originally posted by orion350z
"Credit 101"
The reason some businesses do this is due to the credit card fees. For every dollar a company processes on your credit card, they owe a certain percentage to the credit card company.
(Some companies don't mind this due to high profit margins. Car dealerships generally have much thinner profit margins than other places of business; net/retail. Often, businesses have anywhere from 50%-80% retail markup. This would be absolutely unrealistic of a car dealership to accomplish, unless they expect you to pay 60k for your 350Z.)
There are variances in this due to if a credit card is processed over the phone, or through a card swipe. So, if you were to pay for a 36,000 dollar car on a credit card, about 2-3% of that on average would be owed to the credit card company for processing fees. Nissan would much rather see your money than to give it to another bank for service fees.
This subject has a thousand variances, but hopefully it sheds some light on the magical, often evil world of credit.
"Credit 101"
The reason some businesses do this is due to the credit card fees. For every dollar a company processes on your credit card, they owe a certain percentage to the credit card company.
(Some companies don't mind this due to high profit margins. Car dealerships generally have much thinner profit margins than other places of business; net/retail. Often, businesses have anywhere from 50%-80% retail markup. This would be absolutely unrealistic of a car dealership to accomplish, unless they expect you to pay 60k for your 350Z.)
There are variances in this due to if a credit card is processed over the phone, or through a card swipe. So, if you were to pay for a 36,000 dollar car on a credit card, about 2-3% of that on average would be owed to the credit card company for processing fees. Nissan would much rather see your money than to give it to another bank for service fees.
This subject has a thousand variances, but hopefully it sheds some light on the magical, often evil world of credit.
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