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Curious what people think. I ordered a car that ha...
# general
c
Curious what people think. I ordered a car that had a non refundable deposit of $250. I recently found out you can get $500 off if you use a referral code. They won't allow us to add a referral code after we already placed the order. We could cancel the order and order another with the referral code, but we would need to pay another $250 nonrefundable deposit. It would lower the monthly payment by about $10 per month. This would mean a total net savings of $250-350. Its not difficult to cancel and reorder a new one. The question is, Is it worth paying $250 upfront today to save $500-600 (250-350 net) over several years?
m
How much is your time worth? 👀
c
Its not so much about the time, that would be under an hour. Its really a question of: Is $250 today worth more than $500 slowly over the next 5 years?
m
What's the interest rate for the car loan
c
Not set in stone yet but somewhere between 3-4.75%
m
The sunk cost fallacy is a nice trick in the prompt haha which is easy to throw someone off.
The math I am writing out is making me think I'm over thinking it...
c
As in its definitely worth it?
(We're kinda talking about small change in the long run either way lol)
m
My math is showing me it's not worth it...
So I'm wondering if I'm wrong.
I definitely think in our combined time we have wasted more money at this point than you'll save either way haha
👆 1
c
Even in best case seems close
I definitely think in our combined time we have wasted more money at this point than you'll save either way haha
Definitely. Now its just a math riddle lol
m
Haha exactly.
So we are running the same calculations on the 250. What are you running for the 500
c
image.png
m
I think what we need to do is a compound interest calculation with a starting value of 250, compounding at 8 percent, and every month you subtract 10 dollars. But there is no such calculator for that.
10 dollars being the total cost of a 500 dollar paid out monthly.
If it's positive, you win. If it's negative you lose.
Final answer.
I'd need to write code for this though
Good riddle.
c
I dont think so. I think that its one or the other. Either you save the cost of principal plus interest from the $500 of the loan, or you invest the $250 at whatever interest. The greater number wins
m
A 500 dollar loan over 5 years at a 5 percent interest rate is 612.
In the 500 dollar scenario you are forgetting you have all that money to invest before you pay it off. I think I'm right.
So in the 500 scenario you have 612 dollars to invest compounding but you are subtracting 10.2 dollars each month from the compounding.
Am I tired?
c
Yeh, you dont have the $500 because its just coming off the amount thats being financed
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m
I mean, if I have the 500 dollars to pay it off in 5 years I must have it today right?
Oh yeah that doesn't make sense sorry haha
Yeah I think I had it right at the beginning which is the same thing you're doing.
Then I just over complicated it
😂 1
So what are your final numbers to compare?
My intuition is to do it because It would take 8 years to double your money from 250 to 500. So if you're saying at least 500 already then you're set. Bake of the envelope that makes sense right?
c
Numbers were in favor of doing it, but its pretty close
m
Don't ruin the spirit of a riddle!
n
I didn't follow the whole back and forth, but just compare the present values. $250 vs. PV of a $10 annuity at {your choice of discount rate}. Discount rate can be cost to borrow or return on investment. Excel has a PV function that will do this, just make sure to put in the number of months and the discount rate per month.
The fundamental principle of time value of money is that you can never ever compare dollar amounts from different time periods. So to say 250-350 net implicitly violates this. I spend most of a class drilling this into my students 😂
m
I started grabbing my present value notes from college but then shabbos came in haha
😂 1
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