Interest free loan?

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TTU
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Interest free loan?

Post by TTU » Wed Jun 19, 2013 1:42 am

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?

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mlewis
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Re: Interest free loan?

Post by mlewis » Wed Jun 19, 2013 2:15 am

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

Inflation exists. It's like free money.

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fatlittlepig
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Re: Interest free loan?

Post by fatlittlepig » Wed Jun 19, 2013 3:41 am

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

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Frengo
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Re: Interest free loan?

Post by Frengo » Wed Jun 19, 2013 3:45 am

fatlittlepig wrote:personally don't see the point. i hate debt even if interest free.
OK, but talking from a rational point of view...

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fatlittlepig
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Re: Interest free loan?

Post by fatlittlepig » Wed Jun 19, 2013 4:35 am

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

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Frengo
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Re: Interest free loan?

Post by Frengo » Wed Jun 19, 2013 4:41 am

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 ;)

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stemikger
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Re: Interest free loan?

Post by stemikger » Wed Jun 19, 2013 4:48 am

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!!!

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Frengo
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Re: Interest free loan?

Post by Frengo » Wed Jun 19, 2013 4:50 am

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 ?

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stemikger
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Re: Interest free loan?

Post by stemikger » Wed Jun 19, 2013 4:52 am

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!!!

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Frengo
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Re: Interest free loan?

Post by Frengo » Wed Jun 19, 2013 4:54 am

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.

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stemikger
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Re: Interest free loan?

Post by stemikger » Wed Jun 19, 2013 4:56 am

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!!!

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Kosmo
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Re: Interest free loan?

Post by Kosmo » Wed Jun 19, 2013 7:21 am

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
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Re: Interest free loan?

Post by dbr » Wed Jun 19, 2013 8:36 am

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
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Re: Interest free loan?

Post by Batousai » Wed Jun 19, 2013 10:28 am

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
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Re: Interest free loan?

Post by livesoft » Wed Jun 19, 2013 10:35 am

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.
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Default User BR
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Re: Interest free loan?

Post by Default User BR » Wed Jun 19, 2013 11:04 am

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

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Re: Interest free loan?

Post by Default User BR » Wed Jun 19, 2013 11:04 am

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


Brian

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Frengo
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Re: Interest free loan?

Post by Frengo » Wed Jun 19, 2013 1:28 pm

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

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tetractys
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Re: Interest free loan?

Post by tetractys » Wed Jun 19, 2013 2:07 pm

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

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