Help me calculate!

[ealimbuyao]

I bought some items from Ashley furniture. Where could I save more:

1) 10% payment upfront and the remaining 90% will be at no interest financing for 4 years (plans on putting the money in hign-interest online account)? or

2) 15% sales discount upfront, then the remaining 85% will be at no interest financing for 6 months.

The purchase amount is $6, 073.98.

Thanks,
Ethel

[sweeps]

I assumed an after-tax interest rate of 4% on your savings account.

Option 1 will cost you about $5,127.
Option 2 will cost you about $5,059.

[disneysteve]

Ethel - Is it just no interest, or is it also no payments for 4 years?

sweeps - How did you arrive at those numbers? I come up with something totally different.

I've never heard of them giving you a 15% discount AND 0% financing. Usually, it is either full price with 0% or 10 or 15% off for a cash purchase.

[SnoopyCool]

There's really not enough info. Here's what I did with what you gave (assuming the price is with tax, there's no charge in either financing plan, etc.):

Option 1:
After 10% down, you have to pay $5,466.58 over 48 months. If you make equal monthly payments, that's $113.89 per month.

Option 2:
After 15% down, you have to pay $5,162.98 over 6 months (to be interest free). That would be $860.50 per month.

[sweeps]

I considered the financing as being the typical "no payments until July 2011" you see at furniture stores rather than classic 0% interest financing where you still need to make the minimum payments.

If it's the prior, here is the calculation:

Cost for option 1 is $6073.98 - 48 months of interest on $5466.58 at 4% interest rate ($946.80) = $5,127.18.

Cost for option 2 is $5162.88 - 6 months of interest on $5162.88 at 4% interest rate ($104.12) = $5,058.76

However, I did omit something. In Option 2, the 15% saved at the top could theoretically be saved in the same savings account for the full 48 months. Therefore the cost for option 2 would be even lower.

[ealimbuyao]

clarification...

Option 1: The 0% no-interest financing required 10% downpayment, the 90% remaining balance of the purchase will be paid equally every month from the time of purchase to 2011.


Option 2: Ashley offered a July 4th 15% discount on the sale price, no downpayment. The 85% of the price will be paid equally within 6 months. No interest, too.

Note:
1) The price includes everything - tax, deliver fee...etc.
2) Would it be fair to consider an average 5% interest rate for a an online savings account from now to 2011?

Thanks so much!

[sweeps]

Your nominal APY on the savings account may be 5%, but don't forget you have to pay taxes on interest income. That's why I'm using 4% as an estimated after-tax interest rate. 4% in fact may be an overestimate, I'm not sure.

Option 1 Cost: $5578.12
Option 2 Cost: $4935.04

Several assumptions have been made here... for example, you don't do any prepaying of the loan, and you keep the maximum amount possible in the savings account throughout the 48 months.