Become Your Own Bank: An Insiders Look at the Solution of Automobile Financing
Become Your Own Bank: An Insiders Look at the Solution of Automobile Financing
People often ask, "How is the Infinite Banking Concept better than paying cash?" More importantly, "How can it be used to finance my next automobile?" The answer is quite simple. When we use cash outright to finance our vehicles, we give up the right to earn interest on that money forever. In perspective, we give up almost 34% of every dollar towards paying back interest.
What if I told you that you could recapture that money? How would it change your life? The Infinite Banking Concept allows us to take loans out against our own cash value without affecting the growth of that money. While it may seem like only a small difference on the surface, the long-term implications are very dramatic. Imagine financing your own car. How would that feel? The Infinite Banking Concept allows you to do this at your own convenience by allowing you to pick the interest rate of your loan, the length of which the loan will last, and more importantly, give you control of your finances.
To start out, lets say you are tired of making car payments and now that you have "CASH" you are going to pay for a new car outright and make payments back to yourself. Then, at the end of each 5 years, you will trade your old car in and use the money you have resaved to buy a new car. You need a "liquid account" such as a saving account or CD, because if you put the money in a tax qualified and tax deferred account, you won't be able to use it before you turn 59 12. All the gains on any interest you earn will be taxable, but you are willing to accept this because you do not want to pay higher interest rates to a lender.
You buy your first car with your $25,000 and pay yourself back $5,000 per year at 6.5% interest ($489.15 per month X 12 = $5,869.80/year). At the end of 5 years, you now have $29,349. You then trade in your old car and pay $25,000 in addition to whatever trade-in value you have. You decide to pocket the extra $4,349 that you have accumulated and let that grow for the next 25 years at 4% (remember, you are 5 years older and 5 years closer to retirement).
If you do this every 5 years for 30 years, you will have a $40,684.02 BEFORE TAX gain assuming no losses and a steady 4% return. In the last five years of the plan, you continue paying yourself back the $5,000 per year at the 6.5% interest rate while earning 4% on the balance that you are carrying in your account. When all is said and done, you have a total of $70,033.03 BEFORE TAXES. In addition, you have a new car every 5 years. This gives you the satisfaction not paying interest to the lender.
Enter Infinite Banking Concept!
Lets say you decide to finance a new car every 5 years using the Infinite Banking concept. A big difference that sets this example apart from the others is that when you borrow $25,000 against your policy, the cash value still grows as if a loan had never been taken out. You are borrowing the insurance company's money, and using your cash value as collateral. You still earn an internal rate of return on that money and you still receive dividends. Although you do pay interest on the loan you receive from the insurance company, the interest is simple interest (not compound interest). As a result, you only pay interest on the amount that is outstanding. You are earning interest on the full amount of the cash value which makes the amount of interest that you are earning currently much higher than the amount you are paying for the cost of the loan. The reason for this is because you are earning interest and dividends on a larger principle amount and only paying interest on the amount of the outstanding loan amount.
If you use this concept instead of paying cash and you only pay the interest that the insurance company charges (current is 6.5%), at the end of 30 years, you would have $78,758 in cash value. This is very close to the amount you would have had ($81,084) if you had just let the money sit in an account. On the other hand, it exceeds the $70,033 you would have if you simply paid cash and paid yourself back with the same interest rate of 6.5%. The difference in value is because you did not give up the right to earn interest on the money when you made your automobile purchases. The difference is even greater when you take into account that the $78,758 is accessible TAX FREE and you have $2,116 of tax-free dividends to basis per year! More importantly, through the use of the whole life dividend paying insurance policy, the $176,143 bonus you get as a death benefit, makes it even more lucrative.
We have all been conditioned to accept traditional approaches to the way we "finance" major purchases. Using properly structured whole life policies has been overlooked because we have been conditioned to look at life insurance as a bad "investment". In reality, life insurance is not really an investment at all. As a matter of fact, the only reason we use a properly structured dividend paying whole life product is because it is the only contract in the financial world that gives us everything we need to engage in the banking process efficiently. This process is what helps us accelerate the accumulation of wealth vs. the traditional approaches of using volatile products. When whole life is used properly as a financing mechanism, it is a very powerful tool that provides an unparalleled living benefit while providing an increasing death benefit protection.
When we actually sit down and go through the numbers, we can see this not only true, but is clearly a more efficient approach. A properly structured whole life policy not only provides an increasing death benefit, but it also provides increasing dividend opportunities, a tax free availability of cash, and, more importantly, frees the owner from the whims of bank requirements and government regulations.
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