Quote:
Originally Posted by Sly
If you have $10,000 sitting in a bank account you are making 1-2% at best, which you still have to pay taxes on, all while inflation is typically around 3-5%. If you have a $10,000 credit card debt, auto loan, whatever it may be... odds are your rate is anywhere between 5-20% depending on what it is. In this case, let's say it's 6% for an auto loan. You are losing money by doing this, not making money, not creating leverage, you are losing money.
Now if you take that $10,000 and invest it in something that you absolutely know will make you a higher percentage return than your auto loan PLUS cover the taxes, then it makes more sense to borrow. Borrowing money for luxury items at a high rate (yes, even 6% is high compared to cash) all while you have the cash sitting around does not make financial sense. Period.
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Agreed. There are some rare cases when you can get a CD or something at a higher rate than a loan, but not often. Even if you can, the profit you are making on it is so miniscule that it's not even worth it. Not to mention the effect debt has on your credit score which can hurt you in more serious purchases like property. Ultimately, if you have excess money in the bank, it's better to just pay cash and get it over with.