I am considering using a TSP loan versus a credit union loan to finance the purchase of our next vehicle. I am trying to weigh the relative costs (both direct and indirect) between the two options.
The credit union is offering a 2.0% APR for 36 months and 2.4% APR for 60 months The TSP is offering 2.25% APR for 60 months
According to the TSP website:
Loan Fee. The TSP charges a loan fee of $50 for administrative expenses. The TSP deducts the fee from your loan proceeds. For example, if you request a loan for $1,000, the amount paid to you will be $950.
Interest. The interest rate on your TSP loan is the G Fund rate at the time your loan application is processed. This rate is fixed for the life of the loan. Although TSP loan interest is not tax-deductible, all of the interest goes back into your TSP account.
Indirect costs include sacrificed earnings. When you take a TSP loan, you sacrifice the earnings that might have accrued on the borrowed money, had it remained in your TSP account.
Although you pay the loan amount back to your TSP account with interest, the amount of interest paid may be less than what you might have earned if the money had remained in your TSP account.
My investment philosophy across my entire portfolio, of which my TSP is only a portion, is to have a fixed asset allocation between stocks and bonds and I re-balance across the portfolio periodically to maintain the established allocation.
Therefore, my question is this, if the amount of the TSP loan is small enough such that I can effectively take it only from the G Fund (US Govt bonds) by doing an inter-fund transfer after the loan processes to reestablish the previous balances in the F, C, S, and I funds, is there really any indirect costs of sacrificed earnings since the loan's interest rate is based on the G Fund interest rate and the loan interest payments are credited back into my TSP as I repay the loan?