Barbi really wants to acquire an expensive automobile. She has two options. Option 1: finance the purchase with an automobile loan from her local bank at a 7% interest rate, or Option 2: finance the purchase with a home equity loan at a rate of 7%. Compare and contrast the tax and nontax factors Barbi should consider before deciding which loan to use to pay for the automobile. Barbi typically has more itemized deductions than the standard deduction amount.

Tax and Non-tax Factors

Financing is a crucial reason to start or improve a business especially when there is an economic turn-down. Barbi should consider choosing an institution with more advantages to purchasing the automobile. Generally, a dilemma of choosing a finance bank should not obstruct Barbi. Although the rate of tax on home equity loan and the local bank is equal, critical measures are surveyed to meet the demands of Barbi. For instance, home equity loans need a perfect and clear credit history. They are always secured against the value of the property a person has.

Barbi needs to be transparent in how she makes payment. It would make the lenders to thrust her. In other words, she should be persistent and stable in the payment using the rates given. However, certainty should be considered in the application of the tax laws. Repercussions are checked if taxes are not paid as expected. Local bank enforces the law, unlike home equity loan where the properties are sold to cover the debt.

Non-tax factors that are considered are as follows. First, good infrastructure. A good financial institution provides a good infrastructure. Communication and transport between the lender and the borrower should have efficient communication. Secondly, stable governance. A good financial institution should have good stability when performing its tasks. It creates a sense of trust between the lender and the borrower. Finally, a sound macroeconomic policy. Concepts and variables are considered before deciding to choose the financing bank. However, macroeconomic policy relates to the output, inflation, and unemployment within an institution. They give a clear picture of choosing a financial institution.

References

Hong, L., Zhenxing, X. & Yuanto, X. (2018). Resource tax reform and economic structure transition of resource based economies. Resources, Conservation & Recycling, 136, 389-398.