pay off no interest loan

[baris]

Hello everyone;

I am planning to pay off a %0 apr loan, I have 55 months left.

How would you calculate an offer to your lender telling them you do not have to pay this off but you would pay it off if they took (X%) less than what you owe them. They could make more money by lending the money I give them to someone else.

My instinct tells me to offer arrond %5 percent discount to start with, but I want to play though.

Any feedback is appreciated.

Thanks.

[disneysteve]

Interesting concept. Let us know how you make out. What type of loan is this? Car, appliances, furniture or what?

I've never heard of anyone doing this after the fact but I have certainly heard of people negotiating a cash discount upfront at the time of purchase. In fact, the furniture stores even advertise a 10% discount if you pay cash instead of taking the "free" financing.

I'd say a 5% discount offer is worth a shot. I'd love to know if it gets accepted.

[baris]

Thanks Steve,

It is for a car loan. My concept is that they could sell the money for 6%-7% so I should at least get 3.5% off. Hopefully it will work out.

[disneysteve]

Did you try to negotiate a better deal when you bought the car? If they weren't willing to give a lower price upfront, I really doubt that they'd want to negotiate now.

[baris]

This was a second vehicle needed for my business, I could take 5K off of the purchase price or take the 0% apr. For tax purposes I took the 0% apr and use the cost of ownership for tax purposes since I do not drive this vehicle much. So my understanding is that they already made 5k right after my purchase, now they have 55 months left to collect rest of this money. I am trying to determine how to approch them and what to offer. I am looking to get 3k or 4k off the balance now. it was originally a 72 months loan.

[greenskeeper]

the 5k off or 0% is the "gimmick"

if you take the 5k off, they make it back with financing

if you take the 0% the "financing" is rolled in the price.

old trick

I doubt they'll do anything, but lets hear how it turns out!

[disneysteve]

the 5k off or 0% is the "gimmick"

if you take the 5k off, they make it back with financing

if you take the 0% the "financing" is rolled in the price.

old trick

Way to beat the "old trick" - Pay cash!

Was the tax break really worth 5K? I doubt it. I also doubt they will do anything for you.

[dczech09]

So if my understanding is correct, you're going to try to negotiate a settlement on this debt. Interesting idea indeed. I have never heard of anyone doing this, unless of course they were in financial hardship.

Honestly I do not think you will get anywhere, but you could certainly try. Typically lenders will only settle a debt for a discount if the borrower is at risk of bankruptcy, which would of course result in no money for the lender (or little money).

Looking at it from a time value of money standpoint, the lender certainly should be willing to accept either A) more money in the future or B) less money today. A dollar today is worth more than a dollar tomorrow. That being said, I would look at discounting the price by the APR; since this is a 0% loan, maybe a proxy rate of 5% would be a good start.

I really do not know if you will get anywhere with this; afterall the bank is gonna try to get as much money out of you as they can. But if you do succeed, please share the success story with us.

I also want to note one last thing: if the bank does settle with you for less, keep in mind that the "forgiven" amount of money becomes taxable as income. Assuming the forgiven amount is over $600, the bank will file a 1099 in your name.

[bjl584]

Interesting idea. I would like to know how this turns out.

[Frugal]

I also have never heard of anyone being able to negotiate on a loan like this. Wish I had the courage to do this, and could simply pay it down right away!

[wincrasher]

Good luck, but I doubt it will work.

Also be very sure that this doesn't result in a charge-off on your credit report. That could hurt you alot more that the discount you are getting.

Personally I don't understand why you would want to pay off 0% money that early. Why not invest that money in something that generates a compounded return over the 55 months? surely you can do better than the 5% discount you are seeking.