Loan question

[leviosa]

I know that loans are not ideal but we’re in a situation where it’s not optional. We need a new tractor. It’s essential for the property we live on. Ours completely rusted out and is beyond repair (we inherited it when we bought the property, so the initial 20 years of care were not done by us).

I have 2 options. Both tractors are in similar shape and have the same number of hours on them. One is several years older. But was properly cared for and in great shape.
They both come with the same features. Though one is automatic and one is standard they both will work for my purposes, but the standard is slightly more of a PITA. Doesn’t really matter for our situation. I’m trying to make a decision that makes sense in the long run. But my partner says that my thoughts don’t make sense.

Newer tractor is 19,995. 3.24 interest rate for 72 months
Older tractor is 9000. 2.74 interest rate for 48 months.

My opinion is to get the older tractor. The payment difference is 200 dollars a month. I want to make the payments and bank the 200 extra dollars into a sinking fund. In four years bank the full amount for a year. This would give us 13000 in cash. A very conservative number would 3500 dollars that I could sell the old tractor for in 5 years. I’d have 16500 in cash to buy a newer used tractor in 5 years.

In my brain it makes sense. In 4 years I’ll pay 516 dollars in interest. Where on the bigger loan with the higher interest rate I’d pay 1785 in interest in the same 4 years (plus have another 2 years of payments.)

The difference is I will not need to replace the newer tractor.

It is possible that we’d get used to the standard transmission and not want to replace the older one either. In which case we’d save a lot more money.

Any opinions?

[archiethedragon]

Both tractors are in similar shape with similar hours. Buy the older one and save $10k.

[ellipses84]

I agree with you, unless you think you can pay even more per month to pay off the expensive tractor early. I’m assuming you don’t use this daily and with proper storage and maintenance, it should last a long time.

I think MM is the exception and most people take out loans for big purchases like this. If tractors are anything like cars, you may be able to get an even lower interest rate on a brand new one but I’m assuming those would be way more $$$ and a higher monthly payment. Also, with low interest rates, sometimes it’s smarter to take the loan and invest your excess cash which can earn more in the long run than you are paying in interest.

[jinkies]

Tractors last a million years with proper maintenance. My parents are farmers and still use tractors that are 40+ years old.

Go with the older tractor and save the money.

[Deleted]

I agree that tractors last a million years. When we first bought our house we bought a tractor that was 40+ years old and in fantastic shape. When we upgraded a couple of years later we were able to sell it for nearly twice what we had originally paid for it. All that to say, buy the older one and save the money.

[imojoebunny]

I would go with the older one, given that you will have to make payments for so long on the new one. I think your plan is great idea, unless you could forgo the tractor all together, and hire someone to do the tractor work for a similar or less amount than buying the older tractor. My parents trade tractor work on their farm (trees, mostly, so fire lanes), for hunting rights, but others do it for the right to farm a piece. Much cheaper and easier than having a tractor.

[dr.girlfriend]

I was with you up until the point of buying a newer used tractor in five years with the difference. Is there a huge benefit in comparison to just keeping the (older) one you're buying now? I mean, sounds like a great idea to buy the older tractor and bank/invest the difference, and it you need a new one in five years you can get one, or a new car, or a big house expense, or take a nice vacation, or something else that's higher priority then. :-)

[chpmnk1015]

I'd buy the older if they are similar shape