Another COE REQUEST! will it never end?

[Ake109]

 

Although effective interest rate goes up, end of the day looking at total cash at the end of 5 years is better.

 

5 years FD with 50k at 1.68% interest = $840 interest per year, total $4200 interest collected after 5 years.

5 years loan of 50k at 1.48% interest = $3700 total interest.

 

So net savings of $500 after 5 years.

 

You cannot calculate like that. The point is that using the example you quoted, your loan was NOT $50k for 5 years. It was a varying amount from 50 to 0k over 60 mths. The cash you used to pay down the principal over the 60 months has an opportunity cost which you had left out in your example.

 

If you had not taken the loan, the cash which is used for principal repayments over the 60 months, can be invested for X% returns. That X% is missing from your calculations.

 

 

Edited July 20, 2015 by Ake109

[flashbang]

 

You cannot calculate like that. The point is that using the example you quoted, your loan was NOT $50k for 5 years. It was a varying amount from 50 to 0k over 60 mths. The cash you used to pay down the principal over the 60 months has an opportunity cost which you had left out in your example.

 

If you had not taken the loan, the cash which is used for principal repayments over the 60 months, can be invested for X% returns. That X% is missing from your calculations.

 

 

 

I thought it was a comparison between paying full or taking a 50k loan and putting that 50k into a FD. In that case the 50k in FD would have yielded slightly more than the interest paid, only $500 more after 5 years but better than nothing, plus you have more flexibility to use that 50k in an emergency.