SL/R230: The best way to finance the SL ?
03-09-2002, 06:55 AM
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CLK430, ML320
The best way to finance the SL ?
Unfortunately paying cash is not an attractive option to me at this time. So I left with four choices. The traditional loan, the lease (unfortunately I cannot lease on my business), the "baloon" loan or the home equity line.
i am leaning towords the home equity line because it's tax deductible.
Please let me know if you have some good experience.
i am leaning towords the home equity line because it's tax deductible.
Please let me know if you have some good experience.
03-10-2002, 01:34 PM
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sl500 1998/ferrari 355gts 1997
I don't think that there's any single best answer.
Personally, I think borrowing money for the car is a pretty bad bet.
When I bought my last SL a few years ago, I took out a short-term loan to pay for it until it was convenient for me financially to pay it off. I basically financed the car: 48months at 7% or something like that. I felt a bit like a rube when 4 months later I went to pay it off, and discovered the nasty truth: even at a fairly low interest rate, you pay a lot of interest, a lot more than the 7% I thought I was paying!
For example, at a simple interest rate of 7.5%, on a 50K loan for 48months, you'll end up paying about $170 a month interest. Although the loan is 7.5%, you end up paying $8000 in interest, or 16%. Anyhow, that sucks. Check out the loan calculators and do the math yourself. And that's at a simple interest rate, where the interest payments are spread equally over each payment. This is in contrast to a home equity loan, where typically, most of the interest (and very little of the principal) is paid up in the early years.
If you take out a home equity loan, say $50K and amortize it over 48 months (just to be consistent), the interest is all loaded up in the first years. Payment 1 would be about $900 in principal and almost $300 in interest. So in year 1, you'd pay about $3100 in interest (vs. about $2000 in simple interest). Although you'd pay about 50% more interest, you can deduct that, and that'd reduce it by more. Amortizing the loan over 15 years will reduce your payments significantly (from around $1200 to ~$450), but of course, you'll be paying for it forever, and your interest in the first years will actually be about 9% more ($3300 in first years interest).
So...my thinking is that *if* you're taking out a loan for the car, and you intend to pay it off in the first 1-2 years, you're probably better off with a simple interest loan. Shop around for a good one. If you plan to finance it and pay off the loan over 4-5 years, a home equity loan is better. Either way, it's not "cheap" money--at a 7% home loan, paid off over 4 years, you'll chew through over $7K in interest. After you get 30% back from the Feds and the State, you'll still be paying $4K, or about 9% a year AFTER taxes (all numbers based on that $50K loan). Not a very good deal. But if you really want the car, and it's that important to you, well, that's the cost of luxury. Make an informed decision and go for it.
I've looked into leases a number of times, and it just seems to me that they're almost always a more costly alternative. The only exceptions I can think of are:
1) your business pays for it and writes it all off.
2) you think that the stock market will boom at 20% a year, you're a risk taker, and you'd rather keep your money invested.
3) you gotta have the car, you can't afford a down payment, and you don't care if it costs more. personally, I think if you can afford a monster lease payment on a $100K car, you probably have $20K stashed away somewhere that you can use on a down payment
4) you're one of these "restless" and foolhardy people (like me) who want a new car every 18 months, and you think that a 4 year lease will keep you from buying that new car until the lease is up (because you don't want to incur all those broken lease charges). The expense of the lease will be MORE than paid for by the savings in depreciation, taxes and acquisition costs of that new car that you avoided buying!
Anyhow, those are my thoughts. Use them at your own risk. I'm not a financial advisor or anything...these are just opinions of mine. I'd love to hear others.
Personally, I think borrowing money for the car is a pretty bad bet.
When I bought my last SL a few years ago, I took out a short-term loan to pay for it until it was convenient for me financially to pay it off. I basically financed the car: 48months at 7% or something like that. I felt a bit like a rube when 4 months later I went to pay it off, and discovered the nasty truth: even at a fairly low interest rate, you pay a lot of interest, a lot more than the 7% I thought I was paying!
For example, at a simple interest rate of 7.5%, on a 50K loan for 48months, you'll end up paying about $170 a month interest. Although the loan is 7.5%, you end up paying $8000 in interest, or 16%. Anyhow, that sucks. Check out the loan calculators and do the math yourself. And that's at a simple interest rate, where the interest payments are spread equally over each payment. This is in contrast to a home equity loan, where typically, most of the interest (and very little of the principal) is paid up in the early years.
If you take out a home equity loan, say $50K and amortize it over 48 months (just to be consistent), the interest is all loaded up in the first years. Payment 1 would be about $900 in principal and almost $300 in interest. So in year 1, you'd pay about $3100 in interest (vs. about $2000 in simple interest). Although you'd pay about 50% more interest, you can deduct that, and that'd reduce it by more. Amortizing the loan over 15 years will reduce your payments significantly (from around $1200 to ~$450), but of course, you'll be paying for it forever, and your interest in the first years will actually be about 9% more ($3300 in first years interest).
So...my thinking is that *if* you're taking out a loan for the car, and you intend to pay it off in the first 1-2 years, you're probably better off with a simple interest loan. Shop around for a good one. If you plan to finance it and pay off the loan over 4-5 years, a home equity loan is better. Either way, it's not "cheap" money--at a 7% home loan, paid off over 4 years, you'll chew through over $7K in interest. After you get 30% back from the Feds and the State, you'll still be paying $4K, or about 9% a year AFTER taxes (all numbers based on that $50K loan). Not a very good deal. But if you really want the car, and it's that important to you, well, that's the cost of luxury. Make an informed decision and go for it.
I've looked into leases a number of times, and it just seems to me that they're almost always a more costly alternative. The only exceptions I can think of are:
1) your business pays for it and writes it all off.
2) you think that the stock market will boom at 20% a year, you're a risk taker, and you'd rather keep your money invested.
3) you gotta have the car, you can't afford a down payment, and you don't care if it costs more. personally, I think if you can afford a monster lease payment on a $100K car, you probably have $20K stashed away somewhere that you can use on a down payment
4) you're one of these "restless" and foolhardy people (like me) who want a new car every 18 months, and you think that a 4 year lease will keep you from buying that new car until the lease is up (because you don't want to incur all those broken lease charges). The expense of the lease will be MORE than paid for by the savings in depreciation, taxes and acquisition costs of that new car that you avoided buying!
Anyhow, those are my thoughts. Use them at your own risk. I'm not a financial advisor or anything...these are just opinions of mine. I'd love to hear others.
03-11-2002, 07:49 AM
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SL600, A8L W12, Continental GT, Range Rover SC
While I think your comments about the cost of borrowing are good, the attraction of leasing also depends on how the residual value assumption in the lease compare with the price you can get when reselling the car. And that depends on whether you plan to trade the vehicle to the dealer or go to the trouble of reselling it yourself. For a lazy person like myself, the lease residual may be higher. Also, you might find that the depreciated value of fancy options like Designo paint jobs is very low on resale. In the case of a lease, all the options are given the same residual value multiplier as the car. Finally, leasing reduces risk by specifying exactly what the residual value will be. While I have previously bought cars with cash I plan to take a hard look at leasing when my SL55 order is filled.
03-14-2002, 11:37 AM
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2008 CLS 63 & 2005 SL55
You could buy a "Certificate of Deposit" [ CD ] at your bank, then take out a loan against the CD............ You then pay a differential of 1 to 2 percent.
03-14-2002, 10:10 PM
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2006 SL55 with 030 Performance Package
peoplefirst.com
Check out www.peoplefirst.com I used them a couple times low simple interest and they will do over $75K even though the internet site says they will not.
