3 ms·
Interesting thought, treating your debt like a bond. If you no longer need the debt, i.e. you have the cash to pay it back, you could _theoretically_ loan out
by tsycho 4y ago
Interesting thought, treating your debt like a bond.
If you no longer need the debt, i.e. you have the cash to pay it back, you could _theoretically_ loan out that cash to someone else at the higher current market interest rate. Loaning money involves credit risk of course, so practically this would mean buying something like higher interest paying Treasuries or AAA bonds. Effectively, the spread between your borrowed fixed rate debt and the bonds you bought are the _profit_ you make, the NetPresentValue of which is roughly what you would get if you could "buy back" the debt.
- piperswe 4y agoThat's sorta what I'm doing with my car loan - instead of paying extra principal, I'm putting the money into an FDIC-insured account that pays about twice the interest that I'm paying on my car loan.
- hnick 4y agoDo you pay tax on personal bank interest where you are? Here in Aus you'd be paying tax on the interest at your marginal rate, but if the car is personal that interest is not a tax deductible expense. So you will be ahead at twice the rate, but not by as much as you'd hope so you have to be careful if it's lower.
- piperswe 4y agoI do pay tax on interest, but given the gap between the interest rates it's still a preferential situation (my marginal rate is only 22%)