Buy On Time or Pay Cash Cost of Borrowing 1 Terms of the loan $15,000.00 6 a. Amount of the loan b. Length of the loan (in years) c. Monthly payment Total loan payments made $243.55 2. $ $ 3. $ 4 5 no ($ per month months) Less: Principal amount of the loan Total interest paid over life of loan Tax considerations: - Is this a home equity loan? - Do you itemize deductions on your federal tax retur? What federal tax bracket are you in? Taxes saved due to interest deductions ($ 96) Total after-tax interest cost on the loan yes 240 6. 7 8 Cost of Paying Cash Annual interest earned on savings 9. (6% X ASSINE SUNT 0 Total after-tax interest cost on the loan Cost of Paying Cash 9. Annual interest earned on savings (6% Annual after-tax interest earnings 10 11. Total after-tax interest earnings over life of loan (s years) Net Cost of Borrowing Difference in cost of borrowing versus cost of paying cash 12 because Based on the numbers alone, you should 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