To put 5k into my car loan or just keep it...

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rzk96
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To put 5k into my car loan or just keep it...

Postby rzk96 » Tue Apr 18, 2017 9:02 pm

Hello all:
My background for 2017-
- 20k in my E-Fund {in Ally bank}
- 7k in my car bank account - this is extra money I had AFTER I filled my 20k E - Fund + 5k from my tax refund
- Taxable account: $1,200 with TSM (I am not a serious investor yet. I just contribute 200 bucks per month)
- Already maxed my Roth IRA for 2017
- Will have maxed my 401k by end of June 2017

I am a Recruiter in IT- So got a base + commission job.

Debt:
- Car loan - 34k at 2.99% {brand new Infiniti SUV 2016!!!} back in Nov 2016, now at 31k. I know most people would say "should have gotten a cheaper car!", but this car is my DREAM car and I'm planning on keeping it 15+ years/until it dies. I've had this car since Nov 2016 - absolutely NO regrets in buying it :)

- Mortgage - 196k at like... 3%. Not too worried about this since it's really the ONLY debt I don't mind having. I put in an extra 100 bucks per month.

My dilemma: I got 10k back from my tax refund. I put 3k of it into my Roth, 5k in my "car account", and the last 2k into my regular bank account. My car payment is 469 per month, but I always add in extra 100 bucks per month for principal. Now... in my car account I have 7k. I told myself I want to pay off my car within 3 years. Every year I should have an extra 5k to pay + be able to reach this if I continuously put in extra 100 bucks a month. However, should I just wait till I've got a full 15k (this will probably take 3 tax returns) to pay it all at once when my loan is at 15k?

This should be an easy thing to do, but I'm the paranoid person that has the weird sense of the market crashing haha.
Last edited by rzk96 on Tue Apr 18, 2017 9:08 pm, edited 1 time in total.

mortfree
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Re: To put 5k into my car loan or just keep it...

Postby mortfree » Tue Apr 18, 2017 9:07 pm

if your goal is to minimize the amount of interest paid on your loan, then pay the 5k extra when you have it.

if your goal is to pay it off early, then just wait and lump sum the 15k amount.

side comment:
I assume you don't miss out on the company match since you max the 401k out in June.

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Tue Apr 18, 2017 9:08 pm

Sigh. My company doesn't match :(

JGoneRiding
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Re: To put 5k into my car loan or just keep it...

Postby JGoneRiding » Tue Apr 18, 2017 10:49 pm

I find I actually pay things off early rather than just plan to do so when I do it whenever I have the money rather than wait until I have a bigger chunk.

Plus you save more on int, plus if you ever wanted to you would be amazed how easy it is to refi a car and pull funds out! :D

I am a little confused on your accounting, do you havr an extra each month that you save up? I would just apply this to the loan as a an automatic payment

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grabiner
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Re: To put 5k into my car loan or just keep it...

Postby grabiner » Tue Apr 18, 2017 10:59 pm

mortfree wrote:if your goal is to minimize the amount of interest paid on your loan, then pay the 5k extra when you have it.

if your goal is to pay it off early, then just wait and lump sum the 15k amount.


The extra payment will help you pay off the loan faster, since it will grow risk-free at 2.99%.

And it is better to put extra money against the car loan than against the mortgage. Both avoid interest payments at the same rate, but the mortgage interest is tax-deductible, and mortgage payments take longer to get a benefit. (That is, once the car loan is gone, you can decide to use the money which would have gone to car payments to make extra mortgage payments, or you can choose to spend or invest the money instead.)
David Grabiner

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Re: To put 5k into my car loan or just keep it...

Postby alfredfalls » Wed Apr 19, 2017 12:15 am

mortfree wrote:if your goal is to minimize the amount of interest paid on your loan, then pay the 5k extra when you have it.

if your goal is to pay it off early, then just wait and lump sum the 15k amount.

side comment:
I assume you don't miss out on the company match since you max the 401k out in June.

Sounds reasonable.

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 7:31 am

JGoneRiding wrote:I find I actually pay things off early rather than just plan to do so when I do it whenever I have the money rather than wait until I have a bigger chunk.

Plus you save more on int, plus if you ever wanted to you would be amazed how easy it is to refi a car and pull funds out! :D

I am a little confused on your accounting, do you havr an extra each month that you save up? I would just apply this to the loan as a an automatic payment


I have automatic payments + add the extra 100 bucks into the checking account into the credit union my car loan is w/ and transfer it whenever I get paid by my employer. :D

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Re: To put 5k into my car loan or just keep it...

Postby The Wizard » Wed Apr 19, 2017 8:11 am

grabiner wrote:
mortfree wrote:if your goal is to minimize the amount of interest paid on your loan, then pay the 5k extra when you have it.

if your goal is to pay it off early, then just wait and lump sum the 15k amount.


The extra payment will help you pay off the loan faster, since it will grow risk-free at 2.99%.

And it is better to put extra money against the car loan than against the mortgage. Both avoid interest payments at the same rate, but the mortgage interest is tax-deductible, and mortgage payments take longer to get a benefit. (That is, once the car loan is gone, you can decide to use the money which would have gone to car payments to make extra mortgage payments, or you can choose to spend or invest the money instead.)

I agree with paying off the car loan earlier.
Afterwards, put at least some of that money formerly going to the car loan into a taxable account of some sort so you can buy the next car with cash on hand, no big loan.
The OP said 15 years for this car, but I would target a ten year replacement cycle if one has a single vehicle...
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ryman554
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Re: To put 5k into my car loan or just keep it...

Postby ryman554 » Wed Apr 19, 2017 8:24 am

I have to ask the question:

What is the "car bank account?" It *can't* be money your saving up to buy a new car since you already have your dream car. I sincerely hope it's not the car maintenance fund.. =)

Assuming it's sitting in a savings account... use it and almost all (sans $1000) of your emergency fund and taxable account to pay off your car. Empty your taxable account. Today. Quit diverting an extra $100 to your mortgage -- it does not give you any real tangible benefit until you can pay down a good chunk of your mortgage and you recast your loan.

Change your withholding so you don't have $10k tax refund and get an extra $800/month (+$100 +$100 +$200 = $1200) and finish up your car loan and/or rebuild your emergency fund. this car loan should be gone in under 6 months, I reckon. Once your car loan is done and your emergency fund is back in place (3-6 months of expenses) THEN (likely in 2018) start investing monthly with part of the money in ROTH, and other part in taxable account and other part in "splurge/fun" account...

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 8:51 am

The Wizard wrote:
grabiner wrote:
mortfree wrote:if your goal is to minimize the amount of interest paid on your loan, then pay the 5k extra when you have it.

if your goal is to pay it off early, then just wait and lump sum the 15k amount.


The extra payment will help you pay off the loan faster, since it will grow risk-free at 2.99%.

And it is better to put extra money against the car loan than against the mortgage. Both avoid interest payments at the same rate, but the mortgage interest is tax-deductible, and mortgage payments take longer to get a benefit. (That is, once the car loan is gone, you can decide to use the money which would have gone to car payments to make extra mortgage payments, or you can choose to spend or invest the money instead.)

I agree with paying off the car loan earlier.
Afterwards, put at least some of that money formerly going to the car loan into a taxable account of some sort so you can buy the next car with cash on hand, no big loan.
The OP said 15 years for this car, but I would target a ten year replacement cycle if one has a single vehicle...


I plan on maintaining my car for awhile. My first car I had for 4 years... gave it to my brother since he needed it (and I knew when I purchased it, it'd go to him). The day I gave it to him, the car ran just like the first time I drove it.

Once I pay off my car loan, my plan is to put those extra monies into my taxable :) I just like to do 200 per month into my taxable for now since I'm not a hardcore investor yet.

As for mortgage -- 100 per month.. I only picked that habit up 3 months ago. Perhaps I'll stop then haha.

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 8:58 am

ryman554 wrote:I have to ask the question:

What is the "car bank account?" It *can't* be money your saving up to buy a new car since you already have your dream car. I sincerely hope it's not the car maintenance fund.. =)

Assuming it's sitting in a savings account... use it and almost all (sans $1000) of your emergency fund and taxable account to pay off your car. Empty your taxable account. Today. Quit diverting an extra $100 to your mortgage -- it does not give you any real tangible benefit until you can pay down a good chunk of your mortgage and you recast your loan.

Change your withholding so you don't have $10k tax refund and get an extra $800/month (+$100 +$100 +$200 = $1200) and finish up your car loan and/or rebuild your emergency fund. this car loan should be gone in under 6 months, I reckon. Once your car loan is done and your emergency fund is back in place (3-6 months of expenses) THEN (likely in 2018) start investing monthly with part of the money in ROTH, and other part in taxable account and other part in "splurge/fun" account...


My car bank account is an emergency fund for my car... as in if sh*t hits the fan, I can use that account. I've had friends who lack that account and get financially screwed with a car due a car part (s) being needed.

As for emptying my emergency fund -- sorry, I'll have to pass on that. I have a piece of mind everyday of my life having it. I could probably just keep 15k, but 20k feels safer to me.

My taxable account - it's very new. Maybe 6 months? Not emptying that either since I'm slowly getting the hang of it.

Extra mortgage payment - I'll stop doing that then. I'll restart it once my car is done. :)

As for my withholdings - my commission is taxed super heavy. :(

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flamesabers
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Re: To put 5k into my car loan or just keep it...

Postby flamesabers » Wed Apr 19, 2017 9:17 am

OP,

If this is your dream car why wouldn't you have just saved up the money beforehand and pay in cash rather then go $34k in debt to purchase this SUV? If it's not practical for you to save up the money in a reasonable amount of time, I think that's a sign you don't quite have the finances to afford this vehicle. Unlike houses, there is no tax advantage to holding a car loan and cars rapidly depreciate in value.

As for the $5k I suggest applying it all to your car loan. In regards to your car bank account, unless you're getting an interest rate that's greater then 2.99% I suggest using the money on your car loan. You may or may not need the money for car maintenance in the near future, but having to pay your car debt is an absolute certainty. Besides, why would you need a lot of money for car maintenance when your vehicle is relatively new?

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 9:23 am

flamesabers wrote:OP,

If this is your dream car why wouldn't you have just saved up the money beforehand and pay in cash rather then go $34k in debt to purchase this SUV? If it's not practical for you to save up the money in a reasonable amount of time, I think that's a sign you don't quite have the finances to afford this vehicle. Unlike houses, there is no tax advantage to holding a car loan and cars rapidly depreciate in value.

As for the $5k I suggest applying it all to your car loan. In regards to your car bank account, unless you're getting an interest rate that's greater then 2.99% I suggest using the money on your car loan. You may or may not need the money for car maintenance in the near future, but having to pay your car debt is an absolute certainty. Besides, why would you need a lot of money for car maintenance when your vehicle is relatively new?


Haha, before stating I can't find afford it... my mind set was: Since this car will last me 15+ years (again, will be maintaining it very well), I wanted the car new and exactly how I wanted it. That way once I pay it off ~3 years, I wouldn't want to go to another car "just because".

Also, the car was worth 45k. Got it for 34k. There's no way in hell I'd have gotten this car if it was over 40k.

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 9:27 am

flamesabers wrote:OP,

If this is your dream car why wouldn't you have just saved up the money beforehand and pay in cash rather then go $34k in debt to purchase this SUV? If it's not practical for you to save up the money in a reasonable amount of time, I think that's a sign you don't quite have the finances to afford this vehicle. Unlike houses, there is no tax advantage to holding a car loan and cars rapidly depreciate in value.

As for the $5k I suggest applying it all to your car loan. In regards to your car bank account, unless you're getting an interest rate that's greater then 2.99% I suggest using the money on your car loan. You may or may not need the money for car maintenance in the near future, but having to pay your car debt is an absolute certainty. Besides, why would you need a lot of money for car maintenance when your vehicle is relatively new?


OH and my old car. I didn't think my brother needed it so quickly!!!

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Re: To put 5k into my car loan or just keep it...

Postby ysette9 » Wed Apr 19, 2017 9:31 am

Haha, before stating I can't find afford it... my mind set was: Since this car will last me 15+ years (again, will be maintaining it very well), I wanted the car new and exactly how I wanted it. That way once I pay it off ~3 years, I wouldn't want to go to another car "just because".

Also, the car was worth 45k. Got it for 34k. There's no way in hell I'd have gotten this car if it was over 40k.


All I hear here is a lot of justification. I don't think you're going to get any of us to agree that this was a good financial decision. However, it is made and if the car brings you joy and will continue to bring you joy for the next 15 years, then so be it. We all vote our values with where we put our dollars.

That said, if your goal is to keep the car, then get rid of that car debt. It serves you no good whatsoever and having money in a side account earning almost nothing that could be used to pay off that 3% debt is even more silly. If you had those funds invested in VTSAX with a long-term growth potential of 7% that would be another thing. As it is, you are losing money to interest on the loan and losing money on your cash to inflation. Keep a little for future maintenance, but as others have said, it is a new car and it is a Nissan, so it should be a reliable car for a good long while, unless the SUV is an outlier in the Nissan lineup.
Let us go then, you and I, when the evening is spread out against the sky, like a patient etherized upon a table.

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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 9:34 am

ysette9 wrote:
Haha, before stating I can't find afford it... my mind set was: Since this car will last me 15+ years (again, will be maintaining it very well), I wanted the car new and exactly how I wanted it. That way once I pay it off ~3 years, I wouldn't want to go to another car "just because".

Also, the car was worth 45k. Got it for 34k. There's no way in hell I'd have gotten this car if it was over 40k.


All I hear here is a lot of justification. I don't think you're going to get any of us to agree that this was a good financial decision. However, it is made and if the car brings you joy and will continue to bring you joy for the next 15 years, then so be it. We all vote our values with where we put our dollars.

That said, if your goal is to keep the car, then get rid of that car debt. It serves you no good whatsoever and having money in a side account earning almost nothing that could be used to pay off that 3% debt is even more silly. If you had those funds invested in VTSAX with a long-term growth potential of 7% that would be another thing. As it is, you are losing money to interest on the loan and losing money on your cash to inflation. Keep a little for future maintenance, but as others have said, it is a new car and it is a Nissan, so it should be a reliable car for a good long while, unless the SUV is an outlier in the Nissan lineup.


Wanted to weigh my options. Hearing both sides on here make me very happy! I always appreciate folks.

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Re: To put 5k into my car loan or just keep it...

Postby The Wizard » Wed Apr 19, 2017 9:55 am

rzk96 wrote:Wanted to weigh my options. Hearing both sides on here make me very happy! I always appreciate folks.

It can be a bit of a balancing act figuring where extra money goes when you're younger.
But the key point is: there needs to be extra money available each month after all bills are paid. IOW, one needs to live beneath their means.

Sounds like you're doing ok at this point even though the wisdom of purchasing such an expensive car with borrowed money has been questioned...
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Re: To put 5k into my car loan or just keep it...

Postby ysette9 » Wed Apr 19, 2017 10:03 am

Wanted to weigh my options. Hearing both sides on here make me very happy! I always appreciate folks.


Good attitude :)
Let us go then, you and I, when the evening is spread out against the sky, like a patient etherized upon a table.

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 10:05 am

The Wizard wrote:
rzk96 wrote:Wanted to weigh my options. Hearing both sides on here make me very happy! I always appreciate folks.

It can be a bit of a balancing act figuring where extra money goes when you're younger.
But the key point is: there needs to be extra money available each month after all bills are paid. IOW, one needs to live beneath their means.

Sounds like you're doing ok at this point even though the wisdom of purchasing such an expensive car with borrowed money has been questioned...


Yes, my expenses are very low. I do have a mortgage but my bf lives with me so... I charge him rent = half my mortgage. I have client meetings often so my lunches/dinners are taken care of. My company pays for my phone/gym membership.

And this may sound weird for a 27 year old - But I do not travel or party at all. I've seen my friends blow through their monies with traveling/partying instead of doing retirement funds/E-fund....makes me cringe.

I guess for me the expensive car is just a "hey, way to not blow through money for intangible items in life" kind of view.

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Re: To put 5k into my car loan or just keep it...

Postby erock139 » Wed Apr 19, 2017 10:45 am

One last thing on the car fund and I think we're done on that issue. If the car is actually new-new (not new-CPO or low-low miles and feels new), it should be covered as such (from Infiniti site):
4-year/60,000-mile Basic coverage
5-year/50,000-mile Emission Control coverage
6-year/70,000-mile Powertrain coverage

So unless you plan on buying another vehicle soon, the money is useless in the emergency car fund. From the sound of it, your friends might be driving older, perhaps unreliable cars. Different situations. There isn't much that can happen, save for a major accident, that would require the entire emergency car fund. At most your deductible.

e

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Re: To put 5k into my car loan or just keep it...

Postby Gleops2 » Wed Apr 19, 2017 11:27 am

Put the extra money toward you mortgage, 401K, IRA and savings.

In 30 years, you won't even remember this car.

ALL cars are on a one-way trip to the dump. Drive past a dump. Is there anything in there you would like to have made payments on?

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 11:36 am

erock139 wrote:One last thing on the car fund and I think we're done on that issue. If the car is actually new-new (not new-CPO or low-low miles and feels new), it should be covered as such (from Infiniti site):
4-year/60,000-mile Basic coverage
5-year/50,000-mile Emission Control coverage
6-year/70,000-mile Powertrain coverage

So unless you plan on buying another vehicle soon, the money is useless in the emergency car fund. From the sound of it, your friends might be driving older, perhaps unreliable cars. Different situations. There isn't much that can happen, save for a major accident, that would require the entire emergency car fund. At most your deductible.

e


That could be true ha.

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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 11:40 am

Gleops2 wrote:Put the extra money toward you mortgage, 401K, IRA and savings.

In 30 years, you won't even remember this car.

ALL cars are on a one-way trip to the dump. Drive past a dump. Is there anything in there you would like to have made payments on?


As posted originally, 401k will be maxed by end of June 2017, IRA 2017 is maxed, and my E-Fund is 20k. My savings and retirement funds are all good to go. In regards for 2018 IRA = I have that ready too since every month I get an influx of commission money. I'll put that in the Roth at the appropriate time in 2018.

As for payments (the money I'd have if I didn't have car payment) - probably none. I mean: 100 bucks per month extra to mortgage, put in another 100 bucks to taxable (currently doing it at 200 per month), and... that's it.

finite_difference
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Re: To put 5k into my car loan or just keep it...

Postby finite_difference » Wed Apr 19, 2017 11:50 am

I don't think $34k is that bad actually to pay for a new car. I mean $30k is kind of standard for a new car so you are only about 10% over that. And it's your dream car.

Assuming you keep the car for 15 years and it's not crazy to maintain.

Since you can finance in 15 years all you need is enough to cover maintenance. Putting the rest toward the loan or 50/50 toward the loan and VTSAX makes sense.

I'm surprised you couldn't get a better interest rate like 0-1% though.
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Re: To put 5k into my car loan or just keep it...

Postby bloom2708 » Wed Apr 19, 2017 11:57 am

+1 for putting any extra funds against the Infiniti loan. Pay it off as fast as possible.

One thing that might be worth your time is to track the depreciation each month for the first 3 years.

You are likely looking at the value of your car dropping ~$500/month. This is more than your monthly payment. That means that if you don't pay it down faster that you continually owe more than the car is worth. Negative amortization. If you track your net worth (personal capital, mint, quicken), make sure the value of your vehicle is steadily decreasing. I have to manually lower our car value each month. That makes it quite real.

Your car won't go to $0. But after 7 years it went from $34k to $7k and then after 10 it likely plateaus at $4k. It won't move much from 10 to 15 years. I've never had a car for 10 or 15 years. You will find there is a fatigue factor when it comes to owning the same car for 10+ years. But, you have to do it once to find out. I had one car for 7 years. We changed due to going from 2 to 3 kids. Some of those changes can't be thought of in advance.

In my area, a 6-7 year old Infiniti can be purchased for $5,000 or $6,000 dollars, depending on the mileage. It appears to be steeper depreciation than brands like Toyota, Honda, Lexus.
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Re: To put 5k into my car loan or just keep it...

Postby flamesabers » Wed Apr 19, 2017 12:00 pm

finite_difference wrote:I don't think $34k is that bad actually to pay for a new car. I mean $30k is kind of standard for a new car so you are only about 10% over that. And it's your dream car.

Assuming you keep the car for 15 years and it's not crazy to maintain.

Since you can finance in 15 years all you need is enough to cover maintenance. Putting the rest toward the loan or 50/50 toward the loan and VTSAX makes sense.

I'm surprised you couldn't get a better interest rate like 0-1% though.


I agree $34k isn't an unreasonable price tag for a new vehicle, assuming you have enough money to pay for it in cash. The problem is when one has to get a loan for a rapidly depreciating asset.

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Re: To put 5k into my car loan or just keep it...

Postby inbox788 » Wed Apr 19, 2017 12:24 pm

ysette9 wrote:That said, if your goal is to keep the car, then get rid of that car debt. It serves you no good whatsoever and having money in a side account earning almost nothing that could be used to pay off that 3% debt is even more silly. If you had those funds invested in VTSAX with a long-term growth potential of 7% that would be another thing. As it is, you are losing money to interest on the loan and losing money on your cash to inflation. Keep a little for future maintenance, but as others have said, it is a new car and it is a Nissan, so it should be a reliable car for a good long while, unless the SUV is an outlier in the Nissan lineup.

Agree with all except for the part about keeping a little for future maintenance. You've already got an e-fund, that's what you'd use if you needed extra monies that aren't budgeted for regular maintenance. You have a budget, right?

Take the whole amount, 7k plus 5k and apply it all to the car loan. 3% of 12k is $360 that you're not paying in interest this year. If you don't do this, you've got to get $360 from somewhere in your budget to pay for the cost. -- "A penny saved is a penny earned"

Every year I should have an extra 5k to pay + be able to reach this if I continuously put in extra 100 bucks a month. However, should I just wait till I've got a full 15k (this will probably take 3 tax returns) to pay it all at once when my loan is at 15k?

This should be an easy thing to do, but I'm the paranoid person that has the weird sense of the market crashing haha.

No, don't wait, you're wasting interest costs in a negative arbitrage. And who cares if the market crashes? You've got very little skin in the game. In fact, if the market goes down, you can buy more. It's a good thing for young folks with a lot of time to invest.

rzk96
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Re: To put 5k into my car loan or just keep it...

Postby rzk96 » Wed Apr 19, 2017 12:46 pm

Thanks all for the help :) Knew I could rely on all views on here!!

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8foot7
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Re: To put 5k into my car loan or just keep it...

Postby 8foot7 » Wed Apr 19, 2017 12:59 pm

Pay the car off asap and vow never to borrow money for a car again unless you can fully satisfy the loan immediately at all times.

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Re: To put 5k into my car loan or just keep it...

Postby The Wizard » Wed Apr 19, 2017 1:29 pm

bloom2708 wrote:One thing that might be worth your time is to track the depreciation each month for the first 3 years...

This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.

I've bought probably a dozen new vehicles since my first one in 1975 and have never had the slightest concern about "depreciation", since that term is more correctly used for business expenditures, not personal expenditures.

I look at a vehicle similar to a pair of shoes: I expect to get a certain amount of use over the lifetime of each.
Question: if I buy a pair of shoes for $100, how much do they "depreciate" over first month?
Question 2: does anyone CARE how much those shoes depreciate?

I bought a new vehicle 16 months ago for roughly $50,000. I expect this to last for 10 years or 150,000 miles, with zero residual value. Any extra lifespan or residual value will be a small bonus...
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bloom2708
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Re: To put 5k into my car loan or just keep it...

Postby bloom2708 » Wed Apr 19, 2017 1:36 pm

The Wizard wrote:This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.


:beer

How do you make the purchase "real". The OP is asking if it is "worth" paying the car down/off early or keeping the cash?

Silly to understand your "investment" is dropping in value like a sinking stone? Ok, silly is fine. :wink:

One persons silly is another persons non-silly. I just depreciated my keyboard after typing this. :shock:
Last edited by bloom2708 on Wed Apr 19, 2017 1:49 pm, edited 1 time in total.
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Re: To put 5k into my car loan or just keep it...

Postby flamesabers » Wed Apr 19, 2017 1:45 pm

The Wizard wrote:
bloom2708 wrote:One thing that might be worth your time is to track the depreciation each month for the first 3 years...

This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.

I've bought probably a dozen new vehicles since my first one in 1975 and have never had the slightest concern about "depreciation", since that term is more correctly used for business expenditures, not personal expenditures.

I look at a vehicle similar to a pair of shoes: I expect to get a certain amount of use over the lifetime of each.
Question: if I buy a pair of shoes for $100, how much do they "depreciate" over first month?
Question 2: does anyone CARE how much those shoes depreciate?

I bought a new vehicle 16 months ago for roughly $50,000. I expect this to last for 10 years or 150,000 miles, with zero residual value. Any extra lifespan or residual value will be a small bonus...


When you bought your new vehicles did you pay in cash or did you get a loan? If you paid in cash, I would agree that depreciation is irrelevant if you're planning to drive the vehicle until its wheels fall off. However, if you purchased these vehicles by taking out a loan, doesn't it strike you as unwise to go into debt to acquire an asset that will be underwater in a short amount of time?

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Re: To put 5k into my car loan or just keep it...

Postby The Wizard » Wed Apr 19, 2017 1:56 pm

bloom2708 wrote:
The Wizard wrote:This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.


:beer

How do you make the purchase "real". The OP is asking if it is "worth" paying the car down/off early or keeping the cash?

Silly to understand your "investment" is dropping in value like a sinking stone? Ok, silly is fine. :wink:

One persons silly is another persons non-silly.

Thinking it's an investment is a mistake.
It's​ a Consumer Purchase, with an approximate lifetime in miles and/or years.
If I purchase a $50k vehicle with an expected ten year lifespan, then a linear cost structure makes sense and I had best be putting aside $5k+ per year to buy a replacement in 10+ years when the present one is towed away or donated to charity.

Now a person who trades in his car every 24 months for a new one will have a different cost structure, but neither the OP nor I are planning to do that...
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Re: To put 5k into my car loan or just keep it...

Postby bloom2708 » Wed Apr 19, 2017 2:15 pm

The Wizard wrote:
bloom2708 wrote:
The Wizard wrote:This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.


:beer

How do you make the purchase "real". The OP is asking if it is "worth" paying the car down/off early or keeping the cash?

Silly to understand your "investment" is dropping in value like a sinking stone? Ok, silly is fine. :wink:

One persons silly is another persons non-silly.

Thinking it's an investment is a mistake.
It's​ a Consumer Purchase, with an approximate lifetime in miles and/or years.
If I purchase a $50k vehicle with an expected ten year lifespan, then a linear cost structure makes sense and I had best be putting aside $5k+ per year to buy a replacement in 10+ years when the present one is towed away or donated to charity.

Now a person who trades in his car every 24 months for a new one will have a different cost structure, but neither the OP nor I are planning to do that...


Note, I put "investment" in quotes. I know it isn't an investment. It is an expense. It will go to near $0 for the original owner or subsequent owner. $0 may be $3,000 or some number.

I personally think it is silly to call another idea "silly". Oops. I just called your advice of my advice being silly, silly. Sorry. :|
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finite_difference
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Re: To put 5k into my car loan or just keep it...

Postby finite_difference » Wed Apr 19, 2017 9:13 pm

flamesabers wrote:
The Wizard wrote:
bloom2708 wrote:One thing that might be worth your time is to track the depreciation each month for the first 3 years...

This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.

I've bought probably a dozen new vehicles since my first one in 1975 and have never had the slightest concern about "depreciation", since that term is more correctly used for business expenditures, not personal expenditures.

I look at a vehicle similar to a pair of shoes: I expect to get a certain amount of use over the lifetime of each.
Question: if I buy a pair of shoes for $100, how much do they "depreciate" over first month?
Question 2: does anyone CARE how much those shoes depreciate?

I bought a new vehicle 16 months ago for roughly $50,000. I expect this to last for 10 years or 150,000 miles, with zero residual value. Any extra lifespan or residual value will be a small bonus...


When you bought your new vehicles did you pay in cash or did you get a loan? If you paid in cash, I would agree that depreciation is irrelevant if you're planning to drive the vehicle until its wheels fall off. However, if you purchased these vehicles by taking out a loan, doesn't it strike you as unwise to go into debt to acquire an asset that will be underwater in a short amount of time?


Oh man iOS ate my post again. "Trouble on the page" -> reload -> post gone :)

1. Anyway a 3% loan is 1% real which could be better but is still pretty good. Better to take the loan and invest.

2. I see no evidence that he would be underwater on the loan, assuming he paid 5-10% down. Or got a really good deal. Please post evidence to the contrary..
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White Coat Investor
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Re: To put 5k into my car loan or just keep it...

Postby White Coat Investor » Wed Apr 19, 2017 9:28 pm

rzk96 wrote:Hello all:
My background for 2017-
- 20k in my E-Fund {in Ally bank}
- 7k in my car bank account - this is extra money I had AFTER I filled my 20k E - Fund + 5k from my tax refund
- Taxable account: $1,200 with TSM (I am not a serious investor yet. I just contribute 200 bucks per month)
- Already maxed my Roth IRA for 2017
- Will have maxed my 401k by end of June 2017

I am a Recruiter in IT- So got a base + commission job.

Debt:
- Car loan - 34k at 2.99% {brand new Infiniti SUV 2016!!!} back in Nov 2016, now at 31k. I know most people would say "should have gotten a cheaper car!", but this car is my DREAM car and I'm planning on keeping it 15+ years/until it dies. I've had this car since Nov 2016 - absolutely NO regrets in buying it :)

- Mortgage - 196k at like... 3%. Not too worried about this since it's really the ONLY debt I don't mind having. I put in an extra 100 bucks per month.

My dilemma: I got 10k back from my tax refund. I put 3k of it into my Roth, 5k in my "car account", and the last 2k into my regular bank account. My car payment is 469 per month, but I always add in extra 100 bucks per month for principal. Now... in my car account I have 7k. I told myself I want to pay off my car within 3 years. Every year I should have an extra 5k to pay + be able to reach this if I continuously put in extra 100 bucks a month. However, should I just wait till I've got a full 15k (this will probably take 3 tax returns) to pay it all at once when my loan is at 15k?

This should be an easy thing to do, but I'm the paranoid person that has the weird sense of the market crashing haha.


I wouldn't buy a $34K car if I wasn't a serious investor yet, but I guess if your dream is to finance a $34K car, I hate to spoil your dream. Just seems like an odd dream to me.

But to answer your question, I'd quit eating out and going on vacation until the car was paid off. Maybe you can do it in 18 months instead of 3 years. If that seems like too much of a sacrifice, perhaps you have more important dreams than driving a luxury SUV. And I'd quit throwing $100 at the mortgage and put that $100 toward the car loan too.

And quit loaning money to the IRS.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

JGoneRiding
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Re: To put 5k into my car loan or just keep it...

Postby JGoneRiding » Wed Apr 19, 2017 11:15 pm

The Wizard wrote:
bloom2708 wrote:
The Wizard wrote:This is just plain silly.
Is the OP planning on selling or trading this new car in 7, 15, or 23 months?
No.


:beer

How do you make the purchase "real". The OP is asking if it is "worth" paying the car down/off early or keeping the cash?

Silly to understand your "investment" is dropping in value like a sinking stone? Ok, silly is fine. :wink:

One persons silly is another persons non-silly.

Thinking it's an investment is a mistake.
It's​ a Consumer Purchase, with an approximate lifetime in miles and/or years.
If I purchase a $50k vehicle with an expected ten year lifespan, then a linear cost structure makes sense and I had best be putting aside $5k+ per year to buy a replacement in 10+ years when the present one is towed away or donated to charity.

Now a person who trades in his car every 24 months for a new one will have a different cost structure, but neither the OP nor I are planning to do that...


Something is seriously wrong if a 50k vehicle is useless after a mere 10 yrs and 150 miles that is insane.

My 10 yr old Subaru at 100k miles is still worth 11k.

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Re: To put 5k into my car loan or just keep it...

Postby ryman554 » Thu Apr 20, 2017 8:21 am

rzk96 wrote:My car bank account is an emergency fund for my car... as in if sh*t hits the fan, I can use that account. I've had friends who lack that account and get financially screwed with a car due a car part (s) being needed.

As for emptying my emergency fund -- sorry, I'll have to pass on that. I have a piece of mind everyday of my life having it. I could probably just keep 15k, but 20k feels safer to me.

My taxable account - it's very new. Maybe 6 months? Not emptying that either since I'm slowly getting the hang of it.

Extra mortgage payment - I'll stop doing that then. I'll restart it once my car is done. :)

As for my withholdings - my commission is taxed super heavy. :(


So your car bank account *is* your car maintenance fund. As others have pointed out, that should be your emergency fund... Put it to the car. What would help others here immensely is if you wrote out your monthly budget (income / outgo) to see where all this falls.

Good for stopping extra mortgage payment.. more to the car to wipe it out!.

Note: you can *always* change your commission withholdings or reduce withholdings on your regular income to balance it out, assuming roughly consistent commissions.

I'll conclude by saying, right now, you *do* have an emergency -- it's the car loan. I completely understand why having that money in the bank helps you sleep at night. But that debt can kill you. I bet you can knock it out in under a year... my strong advice to you is to find a way in your budget to do it. And then promise never to get back into debt.

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Re: To put 5k into my car loan or just keep it...

Postby knpstr » Thu Apr 20, 2017 8:28 am

pay the extra money as soon as you have it.
Not only will you save on the interest, it will be "gone" and won't tempt you to buy something else with it as it builds.

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: To put 5k into my car loan or just keep it...

Postby The Wizard » Thu Apr 20, 2017 8:53 am

JGoneRiding wrote:Something is seriously wrong if a 50k vehicle is useless after a mere 10 yrs and 150 miles that is insane.

My 10 yr old Subaru at 100k miles is still worth 11k.

You are probably right. Ten years is intended to be a conservative minimum expectation for replacement planning. If you've saved up sufficient $$ in your New Car Fund over those ten years then you're in good shape whenever you decide to pull the trigger.

The vehicle this one replaced lasted almost 12 years from new but was starting to have rust issues. New one has aluminium body so may last longer with full functionality...
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Re: To put 5k into my car loan or just keep it...

Postby mortfree » Thu Apr 20, 2017 9:24 am

ryman554 wrote:
rzk96 wrote:
Good for stopping extra mortgage payment.. more to the car to wipe it out!.


I'll conclude by saying, right now, you *do* have an emergency -- it's the car loan. I completely understand why having that money in the bank helps you sleep at night. But that debt can kill you. I bet you can knock it out in under a year... my strong advice to you is to find a way in your budget to do it. And then promise never to get back into debt.


Why isn't the mortgage an emergency debt? She owes 196k and it is where she lives. That loan could kill her before a car loan will b/c she'd end up on the streets - or would she live in the paid off car?

See how extreme it is to say that about the car loan?

I'd pay more towards the mortgage before paying off the car. Imagine the amount of interest (deductible, blah blah) on the mortgage that can be saved versus the 2-3k in car interest.

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Re: To put 5k into my car loan or just keep it...

Postby grabiner » Thu Apr 20, 2017 9:53 am

mortfree wrote:Why isn't the mortgage an emergency debt? She owes 196k and it is where she lives. That loan could kill her before a car loan will b/c she'd end up on the streets - or would she live in the paid off car?

See how extreme it is to say that about the car loan?

I'd pay more towards the mortgage before paying off the car. Imagine the amount of interest (deductible, blah blah) on the mortgage that can be saved versus the 2-3k in car interest.


Paying more to the mortgage won't reduce mortgage payments (unless the mortgage is refinanced), so it won't help any emergency need to make mortgage payments until the whole mortgage is gone.

In addition, there is actually more to be saved in interest by paying down the car loan. Once the car loan is gone, the money which would otherwise have been used to make car payments can be used to make mortgage payments. Therefore, an extra payment earns money at the car loan rate until the car loan is gone, and then at the mortgage rate until the mortgage is gone. (In addition, you retain the option of doing something else with the money other than making extra mortgage payments.)
David Grabiner


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