3. Compare a major purchase three ways
Lesson 3 of 5 · Your Financial Foundation in Your 40s
3. Compare a major purchase three ways
Suppose a household needs a $25,000 vehicle. Paying cash avoids loan interest, but reduces available savings. A bank loan keeps more cash on hand, but adds repayments and financing costs. A policy loan may offer access if an existing policy has sufficient loan value; it also adds interest and reduces available policy benefits.
Use the same purchase amount, repayment schedule, and evaluation date for all three comparisons. Include premiums, policy expenses, loan interest, the remaining loan balance, and cash surrender value. Growth shown in an illustration is not automatically the net return on your premiums.
Annual growth exceeding that year’s premium is different from total cash value exceeding all premiums paid. Neither milestone by itself proves that borrowing improved your finances. Compare guaranteed values separately from values that assume future dividends.
Your exercise: Write down what cash reserve would remain after buying the vehicle, the total bank-loan cost, and what policy values would remain after any policy borrowing. If you do not already have a policy, do not assume you could finance the purchase immediately.