Interest free loan?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
TTU
Posts: 55
Joined: Sun Mar 31, 2013 1:33 am

Interest free loan?

Post by TTU »

Bogleheads,

What are your opinions on interest free loans? While I enjoy not having debt, my personal opinion is that it can be smart if utilized properly.

Hypothetically, a $15,000 loan that must be paid over 24 months. Income is sufficient to afford payments easily. No other debt. Interest free as stated above. Thoughts?
User avatar
mlewis
Posts: 211
Joined: Sun Nov 04, 2012 11:39 pm
Contact:

Re: Interest free loan?

Post by mlewis »

No reason not to if you would spend the money anyway.

Inflation exists. It's like free money.
User avatar
fatlittlepig
Posts: 204
Joined: Wed May 22, 2013 4:23 pm

Re: Interest free loan?

Post by fatlittlepig »

personally don't see the point. i hate debt even if interest free.
TTU wrote:Bogleheads,

What are your opinions on interest free loans? While I enjoy not having debt, my personal opinion is that it can be smart if utilized properly.

Hypothetically, a $15,000 loan that must be paid over 24 months. Income is sufficient to afford payments easily. No other debt. Interest free as stated above. Thoughts?
fatlittlepig
User avatar
Frengo
Posts: 447
Joined: Wed Jun 12, 2013 1:16 am

Re: Interest free loan?

Post by Frengo »

fatlittlepig wrote:personally don't see the point. i hate debt even if interest free.
OK, but talking from a rational point of view...
User avatar
fatlittlepig
Posts: 204
Joined: Wed May 22, 2013 4:23 pm

Re: Interest free loan?

Post by fatlittlepig »

still don't see the point, why bother.
Frengo wrote:
fatlittlepig wrote:personally don't see the point. i hate debt even if interest free.
OK, but talking from a rational point of view...
fatlittlepig
User avatar
Frengo
Posts: 447
Joined: Wed Jun 12, 2013 1:16 am

Re: Interest free loan?

Post by Frengo »

fatlittlepig wrote:still don't see the point, why bother.
Put them in a CD, and you make $300. More if rates go up.
Even better, put $14,700 in the cd and with the other $300 buy a dotm call on the S&P500 ;)
User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: Interest free loan?

Post by stemikger »

If you need the money to pay off something and you don't have any cash reserves and you know you will pay it off in time to pay no interest, I don't see anything wrong with.

However, if you are going to use it to try and invest, I don't see the point. I personally don't like to borrow money even if it is interest free, but recently I fell short and needed a quick $3,000. My credit is so good I was able to apply for a new credit card and I have no interest for a full 15 months. I intend to pay it off in about 3 months, so I took the offer
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
User avatar
Frengo
Posts: 447
Joined: Wed Jun 12, 2013 1:16 am

Re: Interest free loan?

Post by Frengo »

stemikger wrote:I have no interest for a full 15 months. I intend to pay it off in about 3 months
Why, if I may ask ?
User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: Interest free loan?

Post by stemikger »

Frengo wrote:
stemikger wrote:I have no interest for a full 15 months. I intend to pay it off in about 3 months
Why, if I may ask ?
Are you asking why I intend to pay it off in 3 months? Or why I took out the loan in the first place?
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
User avatar
Frengo
Posts: 447
Joined: Wed Jun 12, 2013 1:16 am

Re: Interest free loan?

Post by Frengo »

stemikger wrote: Are you asking why I intend to pay it off in 3 months? Or why I took out the loan in the first place?
Why the rush.
User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: Interest free loan?

Post by stemikger »

Frengo wrote:
stemikger wrote: Are you asking why I intend to pay it off in 3 months? Or why I took out the loan in the first place?
Why the rush.
I have been brainwashed by Dave Ramsey over the years and even though it's interest free, I hate having any debt at all. I have no debt including my mortgage. However, I see your point, if it is interest free I should take my time.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
User avatar
Kosmo
Posts: 1303
Joined: Wed Sep 05, 2012 11:54 am
Location: Philadelphia

Re: Interest free loan?

Post by Kosmo »

I'd take it.

Theory (?) question: If the loan is interest free, is your rate if return equal to inflation (assuming you just took the cash and put it under your mattress)?
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Interest free loan?

Post by dbr »

An interest free loan may come at some other cost (built into a price, for example) compared to alternative ways of doing the same thing.
Batousai
Posts: 47
Joined: Mon Jul 30, 2012 11:21 am

Re: Interest free loan?

Post by Batousai »

Kosmo wrote:I'd take it.

Theory (?) question: If the loan is interest free, is your rate if return equal to inflation (assuming you just took the cash and put it under your mattress)?
No. You take the loan and they hand you 15K. You put the money under your mattress. 2 years pass, you pay them 15K and you have no money under your mattress, you did not have a return.

Different question:
If the loan is interest free, but you pay for it with money you received from your paycheck during the period of the loan (i.e., you bought a car, not took a cash loan), is your rate of return a function of inflation?

Yes, because the money you were paid at each time period during the loan was worth a different amount. With a constant paycheck, you would still have no money at the end of the loan, however it's because your paycheck decreased with inflation every pay period. I.e, you were paid less but still were able to pay your loan, so the return is what you didn't get paid.
livesoft
Posts: 86076
Joined: Thu Mar 01, 2007 7:00 pm

Re: Interest free loan?

Post by livesoft »

I have used interest-free loans from credit cards to make money. It is a little harder nowadays in this low-interest-rate environment to make as much many risk-free as in the past, but I would not hesitate to accept any large interest-free loan given to me. Small loans (say less than $25,000) might just be a nuisance.
Wiki This signature message sponsored by sscritic: Learn to fish.
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: Interest free loan?

Post by Default User BR »

I would sign up for as much interest-free debt as I could get and keep it as long as possible. I have no debt aversion at all. As noted you can put it in principal-guaranteed investments and collect free money.


Brian
Default User BR
Posts: 7502
Joined: Mon Dec 17, 2007 6:32 pm

Re: Interest free loan?

Post by Default User BR »

livesoft wrote:Small loans (say less than $25,000) might just be a nuisance.
I'll take it you don't want it.


Brian
User avatar
Frengo
Posts: 447
Joined: Wed Jun 12, 2013 1:16 am

Re: Interest free loan?

Post by Frengo »

Default User BR wrote:I would sign up for as much interest-free debt as I could get and keep it as long as possible. I have no debt aversion at all. As noted you can put it in principal-guaranteed investments and collect free money.
That's my boy! :D
User avatar
tetractys
Posts: 6249
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea

Re: Interest free loan?

Post by tetractys »

I bought my computer on an interest free loan. The trouble comes if the payments are made late or missed, then it's game over. And then there's the marketing trash. So Livesoft I think has a good point, probably not worth it unless over $25,000. -- Tet
Post Reply