Buy On Time or Pay Cash Cost of Borrowing 1. Terms of the loan a. Amount of the loan b. Length of the loan (in years) c. Monthly payment Total loan payments made 2. (5 per month months) 3.4.5.Less:PrincipalamouTotalinterestpaidovTaxconsiderations: - is this a home equity loan? - Do you itemize deductions on your federal tax return? yes 6. What federal tax bracket are you in? 35% 7. Taxes saved due to interest deductions (5) 8. Total after-tax interest cost on the loan 5 9. Annual interest earned on savings Net Cost of Borrowing 12. Difference in cost of borrowing versus cost of paying cash Based on the numbers alone, you should because: If you invest the principal, you'll earn more interest than you'll pay on the loan. The interest on a loan will cost you more than the interest you would earn if you invested the principal