Auto insurance: installments or upfront?

[sweeps]

You should be using after-tax return. Few people can get 4.7% after taxes are taken out (unless you're taking on extra risk).

There could definitely be situations where you come out just a little bit better financially by making installments. But I prefer paying the 6 months and not worrying about again until then. Someone with cash flow issues, I can understand having to go the installment route.

[Scanner]

Sweeps,

Good point on the taxable interest.

I think it comes down to what I have often referred to as "opportunity cost" in business.

Sometimes I elect to hold onto the money because at least in my mind there's more perceived opportunity with it.

Now. . .my malpractice insurance is a different story - they charge a 15% interest if you don't pay the premium up front so I do now. I did used to finance it in the past because often in business I'd come up short come premium time.

But 2.5% is hard to turn down.

If the bill were in April, I'd probably pay the whole thing, just not November.

[InDebtInDC]

Originally Posted by sweeps

You should be using after-tax return. Few people can get 4.7% after taxes are taken out (unless you're taking on extra risk).

There could definitely be situations where you come out just a little bit better financially by making installments. But I prefer paying the 6 months and not worrying about again until then. Someone with cash flow issues, I can understand having to go the installment route.

I agree completely with taxable interest. If you want to be more realistic, calculate using municipal bonds that mature in 1 year. I estimate they pay somewhere between 3-4%.

For people who worry about making payments on time then they should pay the lump sum.

[InDebtInDC]

Originally Posted by Scanner

But 2.5% is hard to turn down.

As I calculated above for you, it's actually lower than 2.5% due to the "opportunity cost" you mentioned. It's closer to 0.5% if you factor in interest you could earn elsewhere with the money.