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Whose Money Should You Use?

Banks faced serious issues a few years ago and as a result the world believes they are not lending out any money anymore.  Reality is that they are and they are doing so at historically low rates.  Rates so low, that it doesn’t even make sense to use your own money anymore.

A few weeks ago, we found ourselves debating the use of credit with a few people who were strong believers that if you can’t buy it cash, you simply shouldn’t buy it.  We don’t disagree with the context that unless you cannot afford to purchase it cash you shouldn’t buy it, however, we do think that in this particular banking climate that if you do purchase it, you should purchase it on credit.

Taking out a loan on a home, car, or boat is not always a bad idea as interest rates have never been lower and it may actually get you to pay less for the items if you finance rather than pay cash.

We like to use the example of cars, as many more people can relate to it rather than boats or homes.  If you are about to buy a car for $100,000 cash, then you are losing about $3,000 – $5,000 a month, but if you buy the same car on credit for $1,600 a month, you are gaining about $1,500 – $2,000 a month and driving the exact same car while getting paid.

It’s the opportunity of cost of money.  As rates are lower, the cost of borrowing is much less and, therefore, the amount of money you would give up when buying cash can actually go to work for you making 3-5% a month while the interest rate you would pay would be 3-4% a year.  This different approach can actually help you take the same car and apply your earnings to the payment, making your monthly cash flow positive and still allowing you to drive the same car.

The same scenario can also be applied to homes or boats, although homes will even get you a tax write-off on interest paid for the year making it an even better proposition.  The mindset needed to make money as described in STAY POOR is all about being creative and finding alternative ways to not be afraid, and in this case nothing keeps you from paying off the debt at any point using the same cash you were going to use to begin with.  This does not apply to credit card interest, as items often purchased on credit cards are not of lasting value and credit card rates are in the 7%+ in most cases.

Despite it being harder to acquire credit, most banks are lending full-time.  From personal to business loans, they are looking for better deals but are also giving better rates to the right people.  Most banks are still accepting criteria above 680 for beacon and looking for debt to income ratios under 50%, which as much as it is a bit harder than before, it certainly isn’t impossible or hard to attain.  For those that do qualify, it makes sense to take advantage of those rates rather than using the cash!

Allow your money to make money and enjoy all of life’s treasures without the cost.  Allow this economic climate to make you more money while others wonder when rates will rise but don’t see the value of the lower borrowing rates.  Look outside of the obvious and you will see that no matter what the economic climate is, money is being made.  Don’t be oblivious, you just have to know where to look!