Financial Choices and Options

Just a quick blog post about financial choices and options, and some of the thinking that goes into it (for me).

I bought a car recently from Carmax, and of course their rules are no negotiation.  So I paid the sticker price.  It was a used car and I paid specifically to have it shipped up from Texas, so I knew what I wanted and was willing to pay their price for it.

They asked me if I wanted to finance the purchase, and I already knew I did not, but asked what the financing rates were anyway.  5% was their lowest and 20% their highest(!).  Now, I have excellent credit so let's assume I would've been offered at or near 5%.

The same week Bank of America offered me a balance transfer or cash advance on my two credit cards with them.  The fee is 4% up to your unused credit limit, where interest does not start for 12 months' time, then it is an egregious 23.5% per annum.

I could have taken the full amount of the car from the Bank of America offer and given that to Carmax at a total fee of 4%.  I'd pay less in one year interest-wise than the lowest financing offer available, and as long as I paid off the car or refinanced it within those 12-months, I would never owe the nasty 23.5% back to Bank of America ever.

Forgetting the car entirely, I could've taken the 4% upfront hit at Bank of America, and reinvested into a 1-year CD.  Bankrate.com tells me the highest national rate is about 4.30%, so I would profit the 0.30% after one year's time.  Would I really do this?  No, 0.30% over a year isn't enough to bother with, but the point remains that it would be a profitable move.

This is how I've been trained over the years to see the world.  So the good news is, you do not have to change your mindset if you do not naturally function this way.  Just run big financial decisions by me and our Firm, and leverage our expertise to steer you in the right direction.