Paying Cash vs Financing (assumptions):
Because the boat loan is a simple interest loan, interest is paid only on the outstanding balance. As the principle balance decreases, the amount of interest that is paid decreases. With each payment, more money goes toward principle and less toward interest. As interest accumulates in an investment, interest is earned on the additional interest. Due to this compounding, the investment value continues to grow quickly. With the decreasing interest on the loan and the increasing interest on the investment, a substantial difference in the TOTAL COST is created. Even if the boat is owned for only a few years, it is still substantially more advantageous to finance rather than pay cash. In the short term or the long term, it is always more advantageous to finance rather than pay cash.
Paying Cash vs Financing (assumptions):
Because the boat loan is a simple interest loan, interest is paid only on the outstanding balance. As the principle balance decreases, the amount of interest that is paid decreases. With each payment, more money goes toward principle and less toward interest. As interest accumulates in an investment, interest is earned on the additional interest. Due to this compounding, the investment value continues to grow quickly. With the decreasing interest on the loan and the increasing interest on the investment, a substantial difference in the TOTAL COST is created. Even if the boat is owned for only a few years, it is still substantially more advantageous to finance rather than pay cash. In the short term or the long term, it is always more advantageous to finance rather than pay cash.
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