In a previous post about my decision to buy a ridiculous car I explained how I went to the showroom with no plan, and within one day, went back to make a downpayment, and to take a loan, which is normally what I didn’t want to do, to pay interest for nothing.
Then I calculated the sums and wondered what I can do to make it work in my favour instead.
The car costs $172000. The max loan I could take was 50%. The longest tenure was 84 months. And the interest rate was at 2.78%.
I worked it out that I had to pay about $1228 per month for 84 months. That sounds painful. But wait, I’m a trader, and wondered how much I can grow the remaining 50% per month.
The amount to grow the remaining 50% ($86000) was to beat at least 1.5% every month to cover the monthly installments of the car.
So I thought and looked back at my past performance (of course, past performance is not indicative of future performance) but I’ve definitely been able to grow my capital more than 1.5% every month, sometimes close to 10%, hardly have a losing month, and maybe an average of between 4-5% for most months (I’m a very conservative trader) And I have 84 months to compound the 1.5%.
So assuming that I am able to grow $86000 at a rate of 1.5% every month for 84 months, by the end of 84 months, I would have $300,362. That’s about double the cost of the car, including the interest paid.
Of course, this is the ideal scenario because I am assuming that I don’t actually use the remaining $86000 to pay the installments. (I am actually able to purchase the car in full without credit but the idea dropped into my head when the staff said they needed the interest from the loan to make profit)
So now, I have a new car, and remaining capital to beat the bank’s interest rate, and maybe even make money from it. Wonderful.
Of course there’s a big butt somewhere (sorry, could’t resist). It is still a liability, even though I doubt by the end of 7 years I would have spent $300k on this car (maybe I would!!! hehehheheh). They are costs to pay. So the total sum of the car+ costs over the 84 months definitely exceed just the base price of $172000.
Nonetheless, growing $86000 by 1.5% minimum per month, seems very doable for me. Sure, there may be up and down months, but the average should definitly be better than 1.5% per month. I trade with a capital of about $200k, and when I sell my old car, I would have more capital to help, so I’m pretty confident I can beat the bank’s interest, and even grow it beyond the cost of the car, assuming I compound everything. I’ll just have to pay the installments out of my own pocket through other means, such as through my salary from my part time work, and through my separate trading income which I try as far as possible not to withdraw from (compounding, again), which is comfortable for me. Having an additional $1228 liability a month definitely stings, but it’s also a motivation and challenge to improve my trading without increasing risks.
Now I know not everyone can do this. It still involves alot of money. (Because I chose a ridiculous car). But if you plan to get a car, and getting a loan, it would be wise to place the highest downpayment possible (minimize total interest paid), take the longest tenure of 84 months (for you to invest/trade and compound the gains to beat the monthly installments), and you might just have gotten yourself a “free” car. Most folks would choose the lowest downpayment and longest tenure to reduce the monthly costs, but what you’re actually doing is increasing the total interest you pay, which is exactly what the bank wants. And that kind of interest will be very difficult to beat. (I’ve done my sums, it’s true. Calculate it yourself)
Now I have a goal. An aim. and I love the challenge.
Then, after this, if all goes well and I have $300k from $86000 after 84 months, maybe the GTR’ll be next. 🙂
Happy trading, and good luck to me!