Originally Posted by John 070
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.
I agree. I'm posting a comment made recently about a buddy that thought he could make more financing a car and because of the bad economy he would have been better off buying the car. This isn't true for everyone but many believe they are Warren Buffet when it comes to investing, fooling themselves with inaccurate percentages, when in reality they aren't even close.
My idiot friend leased a Mercedes and put the difference in the market back in October. Hes down more than 15% - about the same as the DJIA. On track to loose more in the market than he would have in depreciation. Plus he doesn't own a business so none of the payments are a write off. If the market doesn't get a good rebound (18% just to break even) he will end his lease loosing a lot more than if he bought, used the car then resold the car. Even the best intended plans dont always work out in unstable economic times.
If your true yield is less than the loan then there is nothing wrong in paying off a loan early instead of letting it tank in the market (if that was the plan).