Originally Posted by Payroll
This analysis ignores the opportunity cost of capital - the outlets you have to invest the money you are using to prepay the loan. In other words, paying off the loan early to avoid interest does not solve the problem. If one had the liquidity to pay off the entire loan, one could avoid all of the interest, but that doesn't solve the problem.
Bottom line is that it's too bad they hadn't offered it sooner, but such is life.
What you say is absolutely true. Basically, it's like saying the price dropped $700 (that's my interest calc. for 25k borrowed) over the 5 year duration of the loan, on March 1, and a person bought Feb. 29. They missed an incentive as a result. No matter what they try to do, i.e. pay the loan off early, etc., in the end they paid more for the vehicle than if they got it on March 1. The person at 3.9% can also pay off early, so they're still better off than the 4.9% person.
Keep in mind, even 3.9% is higher than what is typically earned in an internet savings acct., so it's no longer that simple to earn more in a savings acct., than on a loan.
So whatever the 4.9 person can fanagle, it's not the same and the opportunity cost of further decisions must be considered. I say for the 4.9'ers, forget about it, it's done. You'll drive yourself crazy unnecessarily.
And again, there's nothing wrong at all about paying off a loan early, nothing. It doesn't maximize return in most cases, but at the same time, not having debt is a relief i.e. "feel good" move.