got 11k left in my car loan at 4% interest. I have the money to pay it off right now. Should I pay if off or invest it? Thank you ! title ^ January 25, 2023 by paysite Uncategorized 39
I have 6 months left on my 2% loan. I kept saying that I shouldn’t pay it off because I make more in my savings account. When I ran the numbers, I realized it would cost me $18 to pay it off early. Screw it. $18 is worth the extra cash flow and just being done with it.
Your $11k is costing $440 per year. Compared to savings account options and considering the psychological effect of having it paid off and time left on the loan, etc. is that worth it to you?
Do you have a fully funded emergency fund? Have you maxed your HSA and IRA for the year? If you answered “yes” then pay it off.
Since neither choice is wrong rn, and coming from personal experience with student loans. I put 50% towards the loan and 50% in savings. Kinda scratches the itch for both
Literally came back from a same discussion going on here https://www.reddit.com/r/personalfinance/comments/1008y5r/should_i_pay_off_my_car_with_my_savings/
answers there and questions/points made there are relevent to your question as well.
tl;dr: given the limited information you supplied, answer is to pay it off.
A long as you have an emergency fund aside from your 11k I’d pay it off Tuesday when businesses open again.
Probably a coin flip. If your near the end of the loan, it’s mostly principal.
Just to add from an average person. Pay it off.
Sure, there is opportunity loss if you pay it off and some “good investment” opportunity comes up. But in my experience, such good opportunity is very rare for average people. Like it is very rare unless you are very active into investment, following trends on stocks, options, currency, etc. For average people, their only activity on investment is just buying a few mutual funds or stocks a couple times a year and they are rarely “great” opportunities.
Pay it off and forget about you had the money and move on.
I just paid my 20k car loan off after reading comments here (actually wanted to for a few days already)
As others are saying, pay it off. Look into your loan contract or reach out to the company you got the loan from to see if you have any early payoff fees that have to be paid. My loan had a 1% fee for the amount I pay off early, or a flat $75 dollars if I paid it off early where it was a smaller amount.
I paid it off early and confirmed with the company that if I had say 11,000 left and I paid $10,500 then the next month finished the final payment how the payments would work out. Paid the $75 and called it a day with two months vs paying $110 to pay it off early.
Just wanted to mention it, but some contracts have no early payoff fees and stuff. So just double check.
Same ask. Two cars 10k each 3% and 5%
I think it largely depends how stable you feel your employment is if you are young don’t expect to lose your job it could absolutely make financial sense to pay the minimum and invest the rest.
The general principal is to in EST with a 10 year time horizon minimum.
This is what you would do to optimize net worth of your life time. There are psychological benefits to be debt free.
You can do A invest, B pay off the debt, or C some comfortable half and half. Maybe you are uncomfortable with 11 k in dent but less unhappy at 5k, 2k or 7732$ I personally try to push people to make the calculating rational decision when it comes to finances, but that’s mostly because its how I am wired.
Pay it off and then whatever payment you had monthly pay to yourself into a savings account
Need more info on your current / future financial situation to weigh in here. Emergency fund, other debts, etc…
There’s certainly a psychological aspect to it, so pay it off if that makes you feel better. However, since you said you have an emergency fund, this seems like investable money. Buy an S&P 500 ETF (tax advantaged, if possible, Roth or back door Roth) and forget about it.
Two ways of looking at it. Pay off the loan and less risk of getting into problems and you can starting saving up using the monthly payment amount you are not paying now. However, I have 10K left on mine but my interest is 3.4%. I have s very stable job and have a Barclays account where I can get 5.1% on 5k. My partner has one too with the other 5k. So our savings are sat there for 2years.
Paying my loan off would save just less then 500quid but we will earn more in interest and will also have the cash there in case I need it, which is worth more to me. Effectively the savings account covers the interest and slightly more.
If you have a partner or can find two similar rate accounts you could consider it. Psychologically I’d just rather have the savings and not worry about the monthly but that is due to the security of my job
I feel like in this period it should not be difficult to find a safe, liquid investment opportunity that earns >4%. If you can find one then you’d be putting money to work for you.
You can get more than 4% in T-bill so i would do that
Personally I would pay it off just so that I didn’t have to think about it anymore. I paid off my 5 year car loan in about 18 months. The interest was 19% so I was keen to get it paid off asap.
If this is all or most of your emergency fund, you should keep the funds available to you, especially in winter. Winter makes every emergency worse, in my experience.
If you are in the southern hemisphere, I apologise. I admit I always assume northern hemisphere residency unless told.
You can get over 4% on treasuries and CDs right now. It’s only by a slight bit but technically more. Either choice wouldn’t be wrong, just personal preference.
That is a low interest rate. The only reason to consider paying extra is if you owe more than the car is worth. If so, pay enough to get positive equity and stay ahead of the depreciation curve.
Keep the loan. You can buy treasury debt that pays more than you’re spending in interest or will soon…
I mean, seriously, you can make more in interest (but take a tax loss) literally just putting that cash in a bank account TODAY. And more hikes likely to come will turn it profitable.
Banks:
4.11%, Axos:
https://www.ufbdirect.com/Savings/ufb-best-savings?status=inactive
4%, PNC: https://www.pnc.com/en/personal-banking/banking/savings/high-yield-savings.html
Treasury:
https://www.treasurydirect.gov/
I bonds are an option (currently 6.89%)
So are short term notes (yield ~4%)
Treasury debt is tax advantaged. Bank interest is not.
You can put it in a savings account and earn that and still have it available for emergencies, so no, doesn’t make sense to pay off the loan.
I’d pay it off. The market probably hasn’t hit bottom yet and the outlook is uncertain. You’re likely to end up with a loss if you get in now.
Flip it around; if you had a paid for car would you borrow $11,000 against it at 4% in order to invest? If not, pay it off, invest a “car payment” every month into a good mutual fund so you never need to pay extra for a car again, and get on with your life.
Pay it off and use the money that would have gone to future payments to invest in long term.
Pay off higher interest debt first, then invest or rebuild liquid emergency cash fund.
First, a rate that low is beating inflation. Second, your credit score will probably drop once your car loan is paid and closed, even moreso if you have no other installment loans (such as personal or student). No need to shoot yourself in the foot like that.
Depends. The pure math answer says to invest it. You can either get guaranteed >4% like u/nkyguy said or go buy stocks since the market is down and they’re “on sale”.
There are people who highly value the feeling of being debt free though. The opportunity cost could be pretty high but only you can answer answer if it’s worth it since you might value that feeling more than money.
My personal experience: a few years ago, I paid off my student loans and a car loan a year or two early and it felt amazing. I think if I were to do it over again, I’d invest that extra money. Both loans were <3%. The feeling felt really good, but passed pretty quick. Looking at a higher investment portfolio would’ve brought me literal years of joy.
Either choice is goodness. You’re doing a great job saving all of that money. Keep it up!
I have a car loan at 3.5%. I have the cash to pay it off. It sits in a HYSA currently earning 3.5% and will probably be 4-5% by end of year.
I have autopay setup from that account and haven’t thought about my car payment in months.
Personally, debt paydown of anything besides credit card debt just isn’t the most efficient use of capital.
Debt elimination is not wealth creation/generation.
Look at the interest savings from paying off the car, and look at the value of your money 20-30yrs down the road. Even at 6% for 20yrs that’s 35k? (74k if you assume 10%average like some people do) Opportunity cost of not investing now is 24k-63k to instead eliminate a car payment and save $400?
Pay that shit off!! Any time you have the option to pay a debt off early, do it. You never know what financial shit storm you could get blown into later on that may fuck up your perfect payment history. Don’t be that guy/girl.
I would not pay it all off, pay a large portion.
From a strictly mathematical standpoint, investing would likely be the better option. 4% interest is still cheap and you can find banks that pay more than that for checking accounts now, let alone other investment options.
But, is the different in earnings vs interest worth more than the relief you would feel from eliminating that burden? Probably not. I would heavily lean towards paying it off if those are your 2 options for the money.
Always get rid of debts. Just make sure you still have an emergency fund after paying it all off.
I’m definitely in the debt averse crowd. So, with that said, if you can safely pay it off then I say go for it! Key word is safely though!
If paying it off means putting your finances at risk, even for a short term (less than 2 months), I wouldn’t do that. Maybe just pay larger chunks?
What about paying it off and investing what the payment would be into something
Pay it off. Then you can put that money towards savings or something else.
INVEST. market is at an all time low. buy now amd reassess later.
4% is not bad.
You can technically get more than 4% from a hysa or t-bills (maybe), but you need to factor in taxes you would pay on these earnings.
If you wanted to invest the money in something for the long-term that didn’t generate income, it’s not a terrible idea, on average you should come out ahead.
I guess just ask yourself, “would I borrow money at 4% to invest in stocks? “ if so, then I guess go for it. I don’t think it makes a huge difference either way.
If you pay it off then you can take that monthly payment and dca into the same investment you would make with the 11k.
Good luck!
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