A person called "Bob" is considering buying a car and financing it over 5 years. He has the option to finance the car with a maximum balloon payment of 30%. When financed the load will have an interest rate of 13%.
Bob also has a unit trust investment that historically (on paper) has had a growth of 15% per annum.
Which is the wisest choice for Bob to make:
- Buy the car with the balloon payment and invest the difference, then at the end pay the balloon payment off; and luckily have some money left.
- Buy the car without the balloon payment, fully financed
Bob isn't the best with finance so any other alternatives are most appreciated!
If in your opinion the difference between the investment growth and interest is too small to do the first option, then; how much should the difference be before the it starts to look like a good idea?