Skip to content
Andrew Tobias
Andrew Tobias

Money and Other Subjects

  • Home
  • Books
  • Videos
  • Bio
  • Archives
  • Links
  • Me-Mail
Andrew Tobias
Andrew Tobias

Money and Other Subjects

Should He Turn Down a 4.5% Loan?

August 29, 1996February 6, 2017

“I try to live below my means (and invest the surplus in no-load, low-fee mutual funds) … but my 13-year old Honda needs to be replaced (with a late-model used car). Through my credit union, I can obtain a share-secured 2-year loan at 4.5%…meanwhile, the shares earn 3.8%. I do realize that the 3.8% dividend will be taxed, and unlike a home equity loan, there is no deduction of the 4.5% interest…but it still looks like ‘cheap money’ to me…is it something that I should take advantage of? I’ve read a bunch of personal finance books…but don’t see much discussion of share-secured loans…you’re my last hope.” — Fred

If I’m your last hope, Fred, you’re in deeper trouble than you realize. But I can see only three reasons to borrow at 4.5% so you can continue to earn 2.5% (which is about what you’re earning, after federal and state income tax, by keeping that dough in a 3.8% credit-union account).

The first is to have a little ready flexibility for emergencies. If you’d be wiped out buying the car for cash, maybe you shouldn’t.

The second is to have a better “balance sheet” if you expect to be applying for other credit (since a savings account may be more impressive to a lender than ownership of a used car).

The third, related, reason, is to establish good credit. If you have no credit history, this would be a painless and inexpensive way to establish that you can pay off a loan responsibly.

But basically, your instinct is right. For every $1,000 you borrow this way, you lose about $20 a year. An exceptionally slow way to get rich.

Post navigation

← One More Vote for Dole, Then on to Other Stuff
Devastatin’ →

Quote of the Day

"Drill for oil? You mean drill into the ground to try and find oil? You're crazy."

Men Edwin L. Drake tried to enlist to his project to drill for oil in 1859

Subscribe

 Advice

The Only Investment Guide You'll Ever Need

"So full of tips and angles that only a booby or a billionaire could not benefit." -- The New York Times

Help

MYM Emergency?

Too Much Junk?

Tax Questions?

Ask Less

Recent Posts

  • Repeal The Steal

    July 2, 2025
  • Our Record-High Stock Market

    June 30, 2025
  • Stuffing The Goose

    June 30, 2025
  • Yes! (Plus A Bonus)

    June 29, 2025
  • How Does THAT Make You Feel . . .

    June 27, 2025
  • Randi, David, Ken, and HYMC

    June 26, 2025
  • Six Links For Your Consideration

    June 25, 2025
  • Weekend Reading

    June 20, 2025
  • Oh, My

    June 18, 2025
  • 3 Quick Clips

    June 17, 2025
Andrew Tobias Books
  • Facebook
  • Twitter
©2025 Andrew Tobias - All Rights Reserved | Website: Whirled Pixels | Author Photo: Tony Adams