Quote:
chapse said:
The interest rate on the loan is higher, but you need to understand that the total interest is being paid on the priciple which is decreased as the loan is being paid.



Correct, but this is offset if you include the fact that you need to shell out the loan payment every month right from the start to pay not only interest but mostly principal. If you paid cash, you could get interest on the 2K you didn't have to pay every month.

Another way to put things is imagine that you need to take 2K out of the CD every month to pay for the loan, still think you will get 30K+ interest at the end of the CD?

Also don't forget that taxes on the CD are paid annually, thus reducing the compounding on the CD.

To make a full analysis, you need to consider all cash flows and their date and discount them all to a certain point in time. Everybody's case will be slightly different but bottom line is that at equal interest rate, if you have to pay taxes on the CD, you are better off paying cash if you don't need the money for something else.