Pay down 7% 403b loan or 3.74% car loan first?

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Bwlonge
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Pay down 7% 403b loan or 3.74% car loan first?

Post by Bwlonge » Tue Nov 05, 2019 6:38 am

403b loan is 12.5k at 7% over 30 years. I currently max contributions and I'm told that they wont call the loan if i leave my job. No additional fees.

Car loan is 39k at 3.74% over 5 years.

The bigger principal on the car means im paying way more interest per month right now. Also the interest for the 403b is essentially additional taxed savings for myself. I'm currently maxing contributions to my 403b and ira.

If I could pay off the 403b or throw 13k at the car loan now, which should i do?

mmmodem
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by mmmodem » Tue Nov 05, 2019 7:00 am

I'd pay off the car loan for two reasons:

1) If you default on the 403b loan, it will be treated as income and you will have to pay taxes on it plus penalty. If you default on the car, they take the car.

2) If you could take a 403b loan right now to pay off the vehicle entirely, would you? If not, then pay off the car loan first. If yes, then you should do that to pay off the car.

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augryphon
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by augryphon » Tue Nov 05, 2019 7:07 am

I’d pay off the 403 first. Not only is it smaller, but you’ll pay income tax on it if you lose your job an can’t pay it back immediately.

When you are done with that one, use the extra money to double down on the car payments.

thegr881
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by thegr881 » Tue Nov 05, 2019 7:14 am

agree with augryphon .

Another benefit... you are paying something which is at 7% compared to something at almost half of it.. You are getting a higher rate of return for ever dollar you pay off on 403b.

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Bwlonge
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Bwlonge » Tue Nov 05, 2019 7:49 am

thegr881 wrote:
Tue Nov 05, 2019 7:14 am
agree with augryphon .

Another benefit... you are paying something which is at 7% compared to something at almost half of it.. You are getting a higher rate of return for ever dollar you pay off on 403b.
Here's where I get confused though. The "return" on paying the 403b is actually money that I would essentially be putting in a taxable brokerage account. So I don't mind that forced saving. The return on the car loan is money that I would otherwise never see again. The bad thing is its 12k not spending time in the market.

The payment on the 403b is $90/mo, so wouldn't really help to throw that at the car loan each month. A little, but not a lot.

It would be nice to get rid of an entire line on my budget to simplify.

Dumping 13k into the car loan now would save me $2300 in interest over the life of the loan.
Killing the 403b loan now would save me $17k additional dollars in my savings account.

aerosurfer
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by aerosurfer » Tue Nov 05, 2019 8:12 am

How about the invested money you are losing by not having it in the 403b over the life of the account? You have raided your retirement funds. That will cost you more in lifetime gains than any interest on the loans paid. Don’t think you are making money by dragging out the repayment of the 403b with interest to yourself. Get the 403 paid back, get the car paid down...
Whether motivated to pay down the highest interest RATE or lowest loan balance... the Car is neither.

From another message board, different scenerio, but similar situation.... essentially the OP was considering defaulting on a 401k loan to pay off other debt..
jimb;484504 wrote:

Since it is your own money that you are loaning to yourself, it does not affect your credit report. However, since it was tax-deferred retirement money, the IRS considers it to be taxable as an early withdrawal with regular taxes for the feds, plus state income in most states, plus the 10% penalty for amount defaulted. Plus, as KCFlyer posted, an extra $25K income might cause some of it to be taxed in a higher than normal bracket. Also, you''ll owe state income taxes too -- if your state has income tax.

You'd actually be far better off to borrow the money if possible somewhere else -- even at a fairly high rate -- in order to avoid defaulting on the 401(k) loan. The taxes and penalty alone, will typically be more than the interest you would have paid to some other lender for a loan elsewhere.

But even worse, you lose the compound interest that you will never earn on the total amount including the taxes and penalty for the rest of your life. So … defaulting will be very expensive in the short run and even worse in the long run..

Without knowing the specific terms of your loan, here's an example of how it would typically work:

The payment on a normal amortized loan of $25,000 at 6.5% would be about $592.87 per month.

If you took out the loan as of perhaps 01/15/2019 and are paid biweekly, there would be around 12 or 13 payments missed so far Interest is typically calculated on the unpaid balance at 1/12 of the yearly rate per month. So after approximately 6 months of no payments with interest accruing at 6.5% annually the balance owed (to yourself) would be somewhere in the range of $25,821 including $821 accrued interest.

If you default and have to pay perhaps 22% federal and 6% state income tax plus the 10% penalty for a total of 38% on a $25,821 withdrawal, the taxes and penalty alone will cost about $9,812, leaving only $16,009 of the original debt for your use..( You'll have to come up with that at tax time, and may even have to pay an extra penalty if you didn't pay it quarterly.)

Assuming perhaps 8% interest on a loan for that amount of $16,009 from a bank or credit union, it could be paid off in 48 months with a payment of $387.08 per month and would cost about $2,571 interest.

So you'd immediately pay about 3.8 times more in taxes and penalties than you would have to pay in interest by borrowing the money elsewhere and paying it off over the next 4 years.

But the taxes and penalties are only the tip of the iceberg.

If you had left that $25,821 alone in the 401(k) to earn a fairly conservative estimate of 7% over perhaps 30 years until retirement , it could have grown to $209,578, earning $183,757 in interest.

So you've given up $183,757 in potential earnings from now until retirement in order to save $2,571 in interest on the short term debt. That's 71.5 times as much interest lost than you would pay on the debt.

But wait…that's not all.

At a very conservative 4% earnings rate after retirement in 30 years, that extra $209,578 could have paid you a monthly annuity income of $1,001 per month for 30 years before it was all gone.

So if you default, and if you do have 30 years until retirement, you could easily be giving up up a potential retirement income of 360 x 1000.56 = $360,201 in order to save that $2,571 in interest on the loan.

That's a lifetime loss of about $140 for every dollar you save in interest on the debt now. It would be considerably worse if you have long until retirement or if your 401(k) were to earn more nearly the historical averages in your investments. So in my opinion you need to try very hard to avoid default on the 401(k) loan.

jimb

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CyclingDuo
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by CyclingDuo » Tue Nov 05, 2019 8:42 am

Bwlonge wrote:
Tue Nov 05, 2019 6:38 am
403b loan is 12.5k at 7% over 30 years. I currently max contributions and I'm told that they wont call the loan if i leave my job. No additional fees.

Car loan is 39k at 3.74% over 5 years.

The bigger principal on the car means im paying way more interest per month right now. Also the interest for the 403b is essentially additional taxed savings for myself. I'm currently maxing contributions to my 403b and ira.

If I could pay off the 403b or throw 13k at the car loan now, which should i do?
Curious what turned the screws so much that you felt the best financial sense was to borrow from you 403b and the need to buy a $39K car?

If it were us, we would throw everything as fast as possible back at both of those loans. Stop maxing out the 403b (immediately) and direct that money to pay off what you borrowed from it and utilize your human capital to get out of the car debt ASAP. Once those loans are paid off, then go back to contributing to your 403b.

Fix thyself...
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Bwlonge
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Bwlonge » Tue Nov 05, 2019 8:55 am

CyclingDuo wrote:
Tue Nov 05, 2019 8:42 am
Curious what turned the screws so much that you felt the best financial sense was to borrow from you 403b and the need to buy a $39K car?

If it were us, we would throw everything as fast as possible back at both of those loans. Stop maxing out the 403b (immediately) and direct that money to pay off what you borrowed from it and utilize your human capital to get out of the car debt ASAP. Once those loans are paid off, then go back to contributing to your 403b.

Fix thyself...
I wanted a nice car.

That's advice I haven't heard before- to stop using the space I'll never get back in retirement accounts and direct it to a loan that is a fraction of projected returns, in addition to the potential to pay 0 tax if laddered correctly later in life.

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CyclingDuo
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by CyclingDuo » Tue Nov 05, 2019 9:00 am

Bwlonge wrote:
Tue Nov 05, 2019 8:55 am
CyclingDuo wrote:
Tue Nov 05, 2019 8:42 am
Curious what turned the screws so much that you felt the best financial sense was to borrow from you 403b and the need to buy a $39K car?

If it were us, we would throw everything as fast as possible back at both of those loans. Stop maxing out the 403b (immediately) and direct that money to pay off what you borrowed from it and utilize your human capital to get out of the car debt ASAP. Once those loans are paid off, then go back to contributing to your 403b.

Fix thyself...
I wanted a nice car.

That's advice I haven't heard before- to stop using the space I'll never get back in retirement accounts and direct it to a loan that is a fraction of projected returns, in addition to the potential to pay 0 tax if laddered correctly later in life.
Want vs. need is a crucial part of having a sound fiscal house in order.

In terms of your debt and use of leverage, many here at BH would recommend you tune into all matters Dave Ramsey. Paying off any non-mortgage debt (primary residence) is a well known, time honored formula to wealth accumulation. Borrowing against your retirement accounts and taking out consumer debt is not a healthy path for your fiscal house.

:sharebeer
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livesoft
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by livesoft » Tue Nov 05, 2019 9:06 am

Pay off the 403(b) loan.

Oh, sell the car, too. :twisted:
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wilked
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by wilked » Tue Nov 05, 2019 9:39 am

Bwlonge wrote:
Tue Nov 05, 2019 8:55 am
CyclingDuo wrote:
Tue Nov 05, 2019 8:42 am
Curious what turned the screws so much that you felt the best financial sense was to borrow from you 403b and the need to buy a $39K car?

If it were us, we would throw everything as fast as possible back at both of those loans. Stop maxing out the 403b (immediately) and direct that money to pay off what you borrowed from it and utilize your human capital to get out of the car debt ASAP. Once those loans are paid off, then go back to contributing to your 403b.

Fix thyself...
I wanted a nice car.

Ouch

The good news is you came to the right place (Bogleheads). I encourage you to read a bit on overall fiscal stewardship, Bogleheads Guide to Investing is a good one to start

What's done is done though. I would pay the 403B back (you've missed out on a nice run of the market with that money you took out), then double down and pay down the car.

wilked
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by wilked » Tue Nov 05, 2019 9:48 am

You didn't ask for it, but some general feedback looking through some older posts - you seem to have a habit for taking on debt. I am looking at these threads
viewtopic.php?f=2&t=293361
viewtopic.php?f=2&t=288122
viewtopic.php?f=11&t=288985

Just one person's observation...something to be aware of and careful with

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Bwlonge
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Bwlonge » Tue Nov 05, 2019 9:54 am

I get that this is Bogleheads so its going to be conservative, but I don't agree with the disdain for all consumer debt for all people always. If everyone was that conservative, they wouldn't let themselves have fun until they saved to pay cash for everything. Yes, a fun 40k car is technically outside my current means, but its very much within my means spread over 5 years. And guess how often you can buy 5 years of your life back?

Another example, people want kids, they don't need them, and they happen to be very expensive- should we not reproduce? I happen to not want kids so I don't mind spending money, and I don't mind low interest debt that much. The 403b loan was in fact taken out to buy a rental property making 30% COC return, so yeah, not all debt is evil.

Save your opinions about how people choose to spend their money and stick to the questions that were asked, namely about the math and theory behind seeing 403b payments as "additional saving" vs as a "return".

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CyclingDuo
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by CyclingDuo » Tue Nov 05, 2019 10:28 am

Bwlonge wrote:
Tue Nov 05, 2019 9:54 am
I get that this is Bogleheads so its going to be conservative, but I don't agree with the disdain for all consumer debt for all people always. If everyone was that conservative, they wouldn't let themselves have fun until they saved to pay cash for everything. Yes, a fun 40k car is technically outside my current means, but its very much within my means spread over 5 years. And guess how often you can buy 5 years of your life back?

Another example, people want kids, they don't need them, and they happen to be very expensive- should we not reproduce? I happen to not want kids so I don't mind spending money, and I don't mind low interest debt that much. The 403b loan was in fact taken out to buy a rental property making 30% COC return, so yeah, not all debt is evil.

Save your opinions about how people choose to spend their money and stick to the questions that were asked, namely about the math and theory behind seeing 403b payments as "additional saving" vs as a "return".
Just be aware that you have become a victim of consumerism where your wants have surpassed your needs. Tidying up your balance sheet is the best advice we can all offer.

Step one in Boglehead Philosphy includes avoiding bad debt.

•Avoid bad debt; if you have such debt, pay off those balances first.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

The 403b loan qualifies as bad debt. Some of us would categorize at least a portion of your car purchase as bed debt as well as it sounds like you went beyond your needs of transportation and financed it to get a chunk of your wants in a vehicle.

What's done is done. How you dig out of it with your shovel from your use of human capital (income) is in your hands.

All the best.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

gr7070
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by gr7070 » Tue Nov 05, 2019 10:30 am

As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by DesertDiva » Tue Nov 05, 2019 10:59 am

CyclingDuo wrote:
Tue Nov 05, 2019 10:28 am
Tidying up your balance sheet is the best advice we can all offer.
+1. Learn the concept of "Opportunity Cost" and view your finances holistically. Your 55-year-old self will thank you.

EnjoyIt
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by EnjoyIt » Tue Nov 05, 2019 11:07 am

Bwlonge wrote:
Tue Nov 05, 2019 9:54 am
I get that this is Bogleheads so its going to be conservative, but I don't agree with the disdain for all consumer debt for all people always. If everyone was that conservative, they wouldn't let themselves have fun until they saved to pay cash for everything. Yes, a fun 40k car is technically outside my current means, but its very much within my means spread over 5 years. And guess how often you can buy 5 years of your life back?

Another example, people want kids, they don't need them, and they happen to be very expensive- should we not reproduce? I happen to not want kids so I don't mind spending money, and I don't mind low interest debt that much. The 403b loan was in fact taken out to buy a rental property making 30% COC return, so yeah, not all debt is evil.

Save your opinions about how people choose to spend their money and stick to the questions that were asked, namely about the math and theory behind seeing 403b payments as "additional saving" vs as a "return".
It is this attitude that has you paying 7% on a loan. It is your life and your choices, but choices have consequences. Everyone here is telling you that you have bad debt.

Even if you want to spend more money on wants, which is fine, you get a lot more wants when you are not paying someone else interest.

To answer your question, pay off the 7% debt and then pay off the car. Keep said car for 10+ years and in the meantime save enough cash to purchase your next car. Decide then if you still want to finance or pay cash. But, have the cash available 1st.

Lastly, I am a car guy. I love cars, but a fancy car every 3 years can be worth hundreds of thousands in lost revenue over a life time. For some it can be the difference between retiring early or having the extra resources needed to survive a layoff during a bad recession. That is a choice and maybe a choice worth making depending on one’s circumstances.

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by deltaneutral83 » Tue Nov 05, 2019 11:18 am

Bwlonge wrote:
Tue Nov 05, 2019 9:54 am
I get that this is Bogleheads so its going to be conservative, but I don't agree with the disdain for all consumer debt for all people always. If everyone was that conservative, they wouldn't let themselves have fun until they saved to pay cash for everything. Yes, a fun 40k car is technically outside my current means, but its very much within my means spread over 5 years. And guess how often you can buy 5 years of your life back?

Another example, people want kids, they don't need them, and they happen to be very expensive- should we not reproduce? I happen to not want kids so I don't mind spending money, and I don't mind low interest debt that much. The 403b loan was in fact taken out to buy a rental property making 30% COC return, so yeah, not all debt is evil.

Save your opinions about how people choose to spend their money and stick to the questions that were asked, namely about the math and theory behind seeing 403b payments as "additional saving" vs as a "return".
You're very lucky that so many wise people have responded with top notch advice given the way you have responded here, which is beyond irrational, both in the literal and figurative sense. BHs use a holistic approach so you can't really suggest that people "save their opinions" because consumer debt is just not going to be viewed upon as a tool to get wealthy for BH. You won't find many wealthy people who make it a habit of taking 401k loans to invest elsewhere and racking up 40k in consumer debt with 3.74% interest rates. The odds simply are not in your favor, what you do of course is a choice and a belief not held by many here as you've seen.

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Thegame14 » Tue Nov 05, 2019 11:28 am

CyclingDuo wrote:
Tue Nov 05, 2019 10:28 am
Bwlonge wrote:
Tue Nov 05, 2019 9:54 am
I get that this is Bogleheads so its going to be conservative, but I don't agree with the disdain for all consumer debt for all people always. If everyone was that conservative, they wouldn't let themselves have fun until they saved to pay cash for everything. Yes, a fun 40k car is technically outside my current means, but its very much within my means spread over 5 years. And guess how often you can buy 5 years of your life back?

Another example, people want kids, they don't need them, and they happen to be very expensive- should we not reproduce? I happen to not want kids so I don't mind spending money, and I don't mind low interest debt that much. The 403b loan was in fact taken out to buy a rental property making 30% COC return, so yeah, not all debt is evil.

Save your opinions about how people choose to spend their money and stick to the questions that were asked, namely about the math and theory behind seeing 403b payments as "additional saving" vs as a "return".
Just be aware that you have become a victim of consumerism where your wants have surpassed your needs. Tidying up your balance sheet is the best advice we can all offer.

Step one in Boglehead Philosphy includes avoiding bad debt.

•Avoid bad debt; if you have such debt, pay off those balances first.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

The 403b loan qualifies as bad debt. Some of us would categorize at least a portion of your car purchase as bed debt as well as it sounds like you went beyond your needs of transportation and financed it to get a chunk of your wants in a vehicle.

What's done is done. How you dig out of it with your shovel from your use of human capital (income) is in your hands.

All the best.
+1, no one NEEDS a 40K car, you could have bought a 15K car and got to work the same....

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by bloom2708 » Tue Nov 05, 2019 11:41 am

Easy. Stop contributing to 403b, Roth, Taxable.

Pay off both loans. Everything goes to them. Both need to go.

Restart retirement savings after both are paid off.
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Watty » Tue Nov 05, 2019 12:26 pm

Just one caution about your finances.

Just through casual conversations, things overheard when you are talking on the phone, your dealings with HR about the loan, or even periodic credit checks that employers do in some situations, your employer will often have good feel about your finances and debt situation.

When you have something like the 403b loan they may also incorrectly assume that you are up to your eyeballs in credit card debt and have maxed out all your credit cards.

That can reflect badly on you and may cause your employer to question if you should be in positions that require a lot of responsibility. For example they may question if you are a good person to handle a multi million dollar project if you have problems with managing your own finances.

Reading between the lines it does not sound like your financial situation is all that bad but it could easily look a lot worse than it is.

Appearances matter a lot.

I would pay off the 403b loan ASAP just to get my employer more separated from my financial situation. If you have decent credit you should be able to get something like a credit card at a lower interest rate anyway.

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by fyre4ce » Tue Nov 05, 2019 1:06 pm

Bwlonge wrote:
Tue Nov 05, 2019 6:38 am
403b loan is 12.5k at 7% over 30 years. I currently max contributions and I'm told that they wont call the loan if i leave my job. No additional fees.

Car loan is 39k at 3.74% over 5 years.

The bigger principal on the car means im paying way more interest per month right now. Also the interest for the 403b is essentially additional taxed savings for myself. I'm currently maxing contributions to my 403b and ira.

If I could pay off the 403b or throw 13k at the car loan now, which should i do?
Mathematically, the size of the loan or the size of the payments makes no difference. The "return" you get for paying down a loan depends only on the after-tax interest rate of the loan. If you have $13k in cash, pay off the 403b loan immediately and get it off your books. If you have a moderate-to-high income, I would recommend making retirement account contributions before paying off the car loan, contrary to what some others have recommended.

However, as others have pointed out, there are behavioral issues here that should not be ignored. Unless we're talking about a house or an education, if you can't pay cash for it, you can't afford it. Many people fall into the d-word trap ("deserve"), but you deserve exactly what you can afford, and see the previous sentence. Buying a $40k car on credit before your financial house is in order was a big mistake, and will have lasting negative consequences. I know you don't want to hear it, but you need to. (As another BH mentioned, we can't give out good advice without looking at someone's finances holistically, and the car and loan are both a mathematical and behavioral gaping wound.) That 3.74% interest rate not good - I'd love to have an investment that paid guaranteed 3.74% after taxes. Honestly, you should sell the car and buy something in the $5,000 range. Get the rest of your finances in order, build up some cash reserves, and then save up and go buy the car you want with cash. It might only take a year or two. I know you think the 403b loan was justified for a real estate investment, but better would have been to have the $12.5k already saved in cash reserves and ready to go toward an investment opportunity.

To your comment about children, yeah, children are expensive. Guess what - people who can't afford to raise children shouldn't have them. This community fully supports people spending money they earn on "wants" including children and luxury cars. I posted in a thread a few months ago helping someone who sold their business decide which multi-$100,000 supercar to buy. But you need to have a solid foundation first, and if you have a 403b loan, then you don't yet. We say these things not because we get some dark pleasure from you being financially deprived. It's because we know the steps necessary, mathematically and behaviorally, to reach financial success and we're trying to encourage you to take them.

donall
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by donall » Tue Nov 05, 2019 1:10 pm

OP, you need to check your 403b loan papers. Most 40b loans are for 5, and rarely up to 15 years. The 30 years is very unusual.

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Clarice » Tue Nov 05, 2019 1:15 pm

Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale

deltaneutral83
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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by deltaneutral83 » Tue Nov 05, 2019 1:29 pm

Clarice wrote:
Tue Nov 05, 2019 1:15 pm
Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale
Clarice, I plan on engaging in habits that will contribute to my heart exploding. Good thing is I am already overweight, I do not exercise, and terrible genetics. Should I eat Mcondalds or Wendys for the next 10 consecutive years at 3 meals a day and if both, what order? Please do not counsel me on healthy habits, just answer the question.

Lmao, finance is 80% behavior and 20% fifth grade math, and BH give out advice in those corresponding increments. And besides, you reiterated what everyone else is saying, get rid of both!

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Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by DesertDiva » Tue Nov 05, 2019 1:38 pm

deltaneutral83 wrote:
Tue Nov 05, 2019 1:29 pm
Clarice wrote:
Tue Nov 05, 2019 1:15 pm
Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale
Clarice, I plan on engaging in habits that will contribute to my heart exploding. Good thing is I am already overweight, I do not exercise, and terrible genetics. Should I eat Mcondalds or Wendys for the next 10 consecutive years at 3 meals a day and if both, what order? Please do not counsel me on healthy habits, just answer the question.

Lmao, finance is 80% behavior and 20% fifth grade math, and BH give out advice in those corresponding increments. And besides, you reiterated what everyone else is saying, get rid of both!
+1000 - genius answer

itsgot8
Posts: 150
Joined: Thu Dec 14, 2017 11:20 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by itsgot8 » Tue Nov 05, 2019 3:40 pm

deltaneutral83 wrote:
Tue Nov 05, 2019 1:29 pm
Clarice wrote:
Tue Nov 05, 2019 1:15 pm
Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale
Clarice, I plan on engaging in habits that will contribute to my heart exploding. Good thing is I am already overweight, I do not exercise, and terrible genetics. Should I eat Mcondalds or Wendys for the next 10 consecutive years at 3 meals a day and if both, what order? Please do not counsel me on healthy habits, just answer the question.

Lmao, finance is 80% behavior and 20% fifth grade math, and BH give out advice in those corresponding increments. And besides, you reiterated what everyone else is saying, get rid of both!
OP is maxing 403b contributions. You have assumed they haven't learned their lesson and will continue to engage in non-bh behavior. You also know nothing about their financial situation - retirement account balances, age, total debts, etc - beyond what little information was posted regarding the loans. You're being dramatic with your response.

alfaspider
Posts: 2166
Joined: Wed Sep 09, 2015 4:44 pm

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by alfaspider » Tue Nov 05, 2019 3:46 pm

gr7070 wrote:
Tue Nov 05, 2019 10:30 am
As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!
I somewhat disagree. While raiding retirement savings is generally a problem, there are circumstances where retirement borrowing can be done strategically. I will use myself as an example: I am in the process of renovating a house. I have more than sufficient investments in my taxable accounts to pay cash without adding to my mortgage. However, there is substantial tax gain built into those investments. Rather than paying tax by liquidating taxable investments, I am using a short term 401k loan for 4 months until bonus season. Interest is paid to myself, and the amount is a small portion of my overall portfolio. My overall market exposure remains the same as opposed to liquidating the same amount of taxable investments. If the worst happened and I received no bonus, I'd simply liquidate the taxable investments as needed. It's purely a tax play.

Regarding car vs 401k loan: In general, I'm incline to say car first. Interest on that loan is paid to a third party, while interest on a 401k loan is paid to yourself. While you can probably beat the car loan in the market, a risk-free 3.7% isn't a bad deal. My advice would be the opposite if there were any significant risk of defaulting on the 401k loan, especially if the loan would be called upon leaving one's employer.

User avatar
corn18
Posts: 1532
Joined: Fri May 22, 2015 6:24 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by corn18 » Tue Nov 05, 2019 3:48 pm

itsgot8 wrote:
Tue Nov 05, 2019 3:40 pm
deltaneutral83 wrote:
Tue Nov 05, 2019 1:29 pm
Clarice wrote:
Tue Nov 05, 2019 1:15 pm
Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale
Clarice, I plan on engaging in habits that will contribute to my heart exploding. Good thing is I am already overweight, I do not exercise, and terrible genetics. Should I eat Mcondalds or Wendys for the next 10 consecutive years at 3 meals a day and if both, what order? Please do not counsel me on healthy habits, just answer the question.

Lmao, finance is 80% behavior and 20% fifth grade math, and BH give out advice in those corresponding increments. And besides, you reiterated what everyone else is saying, get rid of both!
OP is maxing 403b contributions. You have assumed they haven't learned their lesson and will continue to engage in non-bh behavior. You also know nothing about their financial situation - retirement account balances, age, total debts, etc - beyond what little information was posted regarding the loans. You're being dramatic with your response.
The OP has other threads that outline all of this. He is leveraged to his eyeballs in real estate.
Don't do something, just stand there!

deltaneutral83
Posts: 1336
Joined: Tue Mar 07, 2017 4:25 pm

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by deltaneutral83 » Tue Nov 05, 2019 3:58 pm

itsgot8 wrote:
Tue Nov 05, 2019 3:40 pm
OP is maxing 403b contributions. You have assumed they haven't learned their lesson and will continue to engage in non-bh behavior. You also know nothing about their financial situation - retirement account balances, age, total debts, etc - beyond what little information was posted regarding the loans. You're being dramatic with your response.
OP has posted plenty in other topics mentioning debt and "financial situation." [Comment removed by Moderator Misenplace.]

OP came and made a post and has plenty of debt in a lot of strategies most BH stay away from and he was correctly advised to examine this. i have no idea how anyone would have an issue with this. Certainly no drama in my finances or responses. Sometimes situations like OP require unorthodox methods to shock the system. As more to the debt question, you would have to be completely brain dead to lose money in real estate the last 8 years. It's not about when things go well, its about October 2007-March 2009 where the rubber meets the road.

wilked
Posts: 1623
Joined: Thu Mar 24, 2011 1:50 pm

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by wilked » Wed Nov 06, 2019 7:21 am

itsgot8 wrote:
Tue Nov 05, 2019 3:40 pm
deltaneutral83 wrote:
Tue Nov 05, 2019 1:29 pm
Clarice wrote:
Tue Nov 05, 2019 1:15 pm
Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale
Clarice, I plan on engaging in habits that will contribute to my heart exploding. Good thing is I am already overweight, I do not exercise, and terrible genetics. Should I eat Mcondalds or Wendys for the next 10 consecutive years at 3 meals a day and if both, what order? Please do not counsel me on healthy habits, just answer the question.

Lmao, finance is 80% behavior and 20% fifth grade math, and BH give out advice in those corresponding increments. And besides, you reiterated what everyone else is saying, get rid of both!
OP is maxing 403b contributions. You have assumed they haven't learned their lesson and will continue to engage in non-bh behavior. You also know nothing about their financial situation - retirement account balances, age, total debts, etc - beyond what little information was posted regarding the loans. You're being dramatic with your response.
All anyone knows besides OP is the info in this forum. It's limited info, but's it the info given and advice was asked. All of the above advice is given freely and with good intent. If we didn't make any assumptions no one here would be able to offer any advice. OP doesn't have to agree with all the advice, but it's good to hear all sides and not take such a limited view of 'answer this question and only this question" when there are other obvious things to discuss.

edit to add: there's a million examples, here's one that I see at the top of Bogleheads, just opened
viewtopic.php?p=4825797#p4825797

OP asks: "Should I issue a stop-check?"
First response is to answer question, but also add some separate advice regarding using electronic payments instead.

OP may have come in with one question but end up getting better advice as a result of other questions raised

User avatar
corn18
Posts: 1532
Joined: Fri May 22, 2015 6:24 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by corn18 » Wed Nov 06, 2019 7:44 am

wilked wrote:
Wed Nov 06, 2019 7:21 am
itsgot8 wrote:
Tue Nov 05, 2019 3:40 pm
deltaneutral83 wrote:
Tue Nov 05, 2019 1:29 pm
Clarice wrote:
Tue Nov 05, 2019 1:15 pm
Lmao the question was loan vs. loan - OP wasn’t asking how you all think he should live his life.

403b first, using proceeds from car sale
Clarice, I plan on engaging in habits that will contribute to my heart exploding. Good thing is I am already overweight, I do not exercise, and terrible genetics. Should I eat Mcondalds or Wendys for the next 10 consecutive years at 3 meals a day and if both, what order? Please do not counsel me on healthy habits, just answer the question.

Lmao, finance is 80% behavior and 20% fifth grade math, and BH give out advice in those corresponding increments. And besides, you reiterated what everyone else is saying, get rid of both!
OP is maxing 403b contributions. You have assumed they haven't learned their lesson and will continue to engage in non-bh behavior. You also know nothing about their financial situation - retirement account balances, age, total debts, etc - beyond what little information was posted regarding the loans. You're being dramatic with your response.
All anyone knows besides OP is the info in this forum. It's limited info, but's it the info given and advice was asked. All of the above advice is given freely and with good intent. If we didn't make any assumptions no one here would be able to offer any advice. OP doesn't have to agree with all the advice, but it's good to hear all sides and not take such a limited view of 'answer this question and only this question" when there are other obvious things to discuss.

edit to add: there's a million examples, here's one that I see at the top of Bogleheads, just opened
viewtopic.php?p=4825797#p4825797

OP asks: "Should I issue a stop-check?"
First response is to answer question, but also add some separate advice regarding using electronic payments instead.

OP may have come in with one question but end up getting better advice as a result of other questions raised
And that extra advice can lead to life changing impacts. I joined savingsadvice.com in 2013 to ask a question about whether I should pay off my car loans. I had $100k of car loans. They spent a lot of time not answering my question and asking why I had $100k in car loans. I got irritated. I just wanted some advice. I was making $350k a year and had plenty of income to cover 4 car payments, who were they to question me? Well, I actually listened a little bit and read the book "The Millionaire Next Door" and that changed my life. We cut expenses and started saving like crazy and now we may be able to retire in 2 years vs. being in debt for the rest of our lives. Without their persistence in trying to help me figure out my entire financial picture, I think we would be one of those families that look rich but were really poor. I am thankful for their willingness to see more than just my question and help us fix the bigger problems.

I hope the OP sees it this way as well.

TO add to this, I joined BH in 2015 and learned how to invest. Before BH, I was investing in EVERY fund in my 401k equally. I didn't know what to do, so I bought them all. 26 funds. My taxable account was mostly individual stocks and I was playing in naked puts. I wasn't making any money and paying a lot in fees. BH got me on track. I hope everyone realizes how much you can change a life with your advice. Not just my life, but my 2 adult children as well. I can now help them get on track early and hopefully they will benefit from what I have learned here. It really is much larger than a bunch of posts on a forum.
Last edited by corn18 on Wed Nov 06, 2019 8:17 am, edited 1 time in total.
Don't do something, just stand there!

itsgot8
Posts: 150
Joined: Thu Dec 14, 2017 11:20 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by itsgot8 » Wed Nov 06, 2019 8:05 am

deltaneutral83 wrote:
Tue Nov 05, 2019 3:58 pm
itsgot8 wrote:
Tue Nov 05, 2019 3:40 pm
OP is maxing 403b contributions. You have assumed they haven't learned their lesson and will continue to engage in non-bh behavior. You also know nothing about their financial situation - retirement account balances, age, total debts, etc - beyond what little information was posted regarding the loans. You're being dramatic with your response.
OP has posted plenty in other topics mentioning debt and "financial situation." [Comment removed by Moderator Misenplace.]

OP came and made a post and has plenty of debt in a lot of strategies most BH stay away from and he was correctly advised to examine this. i have no idea how anyone would have an issue with this. Certainly no drama in my finances or responses. Sometimes situations like OP require unorthodox methods to shock the system. As more to the debt question, you would have to be completely brain dead to lose money in real estate the last 8 years. It's not about when things go well, its about October 2007-March 2009 where the rubber meets the road.
I did not know of the OP's previous posts as I don't have the time to read every single thread and every single post on this board. It makes your response, and others' responses make more sense given that new information. However, you cannot assume every person who reads your post has the same information you do. When read in a vacuum, your response came off dramatic. It would have been beneficial if you added that info for context as it better supports the narrative.

[Comment removed by Moderator Misenplace.]
Last edited by itsgot8 on Wed Nov 06, 2019 8:07 am, edited 1 time in total.

Clarice
Posts: 197
Joined: Thu Jun 14, 2018 3:26 pm
Location: Orlando FL

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Clarice » Wed Nov 06, 2019 8:50 am

alfaspider wrote:
Tue Nov 05, 2019 3:46 pm
gr7070 wrote:
Tue Nov 05, 2019 10:30 am
As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!
I somewhat disagree. While raiding retirement savings is generally a problem, there are circumstances where retirement borrowing can be done strategically. I will use myself as an example: I am in the process of renovating a house. I have more than sufficient investments in my taxable accounts to pay cash without adding to my mortgage. However, there is substantial tax gain built into those investments. Rather than paying tax by liquidating taxable investments, I am using a short term 401k loan for 4 months until bonus season. Interest is paid to myself, and the amount is a small portion of my overall portfolio. My overall market exposure remains the same as opposed to liquidating the same amount of taxable investments. If the worst happened and I received no bonus, I'd simply liquidate the taxable investments as needed. It's purely a tax play.

Regarding car vs 401k loan: In general, I'm incline to say car first. Interest on that loan is paid to a third party, while interest on a 401k loan is paid to yourself. While you can probably beat the car loan in the market, a risk-free 3.7% isn't a bad deal. My advice would be the opposite if there were any significant risk of defaulting on the 401k loan, especially if the loan would be called upon leaving one's employer.
I don’t understand.

If I borrow from my 401k at 7% then I pay back the loan plus 7% and I get to keep the 7%? Sounds like forced savings. The opportunity cost is those funds could have otherwise been invested in the market? So I’m better off with a loan if the market goes down? I think I’m missing something - surely the brokerage gets paid somewhere.

alfaspider
Posts: 2166
Joined: Wed Sep 09, 2015 4:44 pm

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by alfaspider » Wed Nov 06, 2019 9:43 am

Clarice wrote:
Wed Nov 06, 2019 8:50 am
alfaspider wrote:
Tue Nov 05, 2019 3:46 pm
gr7070 wrote:
Tue Nov 05, 2019 10:30 am
As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!
I somewhat disagree. While raiding retirement savings is generally a problem, there are circumstances where retirement borrowing can be done strategically. I will use myself as an example: I am in the process of renovating a house. I have more than sufficient investments in my taxable accounts to pay cash without adding to my mortgage. However, there is substantial tax gain built into those investments. Rather than paying tax by liquidating taxable investments, I am using a short term 401k loan for 4 months until bonus season. Interest is paid to myself, and the amount is a small portion of my overall portfolio. My overall market exposure remains the same as opposed to liquidating the same amount of taxable investments. If the worst happened and I received no bonus, I'd simply liquidate the taxable investments as needed. It's purely a tax play.

Regarding car vs 401k loan: In general, I'm incline to say car first. Interest on that loan is paid to a third party, while interest on a 401k loan is paid to yourself. While you can probably beat the car loan in the market, a risk-free 3.7% isn't a bad deal. My advice would be the opposite if there were any significant risk of defaulting on the 401k loan, especially if the loan would be called upon leaving one's employer.
I don’t understand.

If I borrow from my 401k at 7% then I pay back the loan plus 7% and I get to keep the 7%? Sounds like forced savings. The opportunity cost is those funds could have otherwise been invested in the market? So I’m better off with a loan if the market goes down? I think I’m missing something - surely the brokerage gets paid somewhere.
Yes. You've effectively replaced equity in your 401k for a bond that is your obligation. If the market goes down between when you take out the loan and when you pay it off, you will come out ahead. Whether there are fees associated with the loan is dependent on your plan.

nolesrule
Posts: 1346
Joined: Thu Feb 26, 2015 10:59 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by nolesrule » Wed Nov 06, 2019 11:23 am

When a new topic is created of this sort, it's always prudent to review an OP's previous posts on the forum in order to look for additional information that has been left out. There is a tendency for people to leave out pertinent information, sometimes on purpose, in order to lead a discussion in the direction they want, rather than the direction they need.

Clarice
Posts: 197
Joined: Thu Jun 14, 2018 3:26 pm
Location: Orlando FL

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by Clarice » Wed Nov 06, 2019 1:09 pm

alfaspider wrote:
Wed Nov 06, 2019 9:43 am
Clarice wrote:
Wed Nov 06, 2019 8:50 am
alfaspider wrote:
Tue Nov 05, 2019 3:46 pm
gr7070 wrote:
Tue Nov 05, 2019 10:30 am
As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!
I somewhat disagree. While raiding retirement savings is generally a problem, there are circumstances where retirement borrowing can be done strategically. I will use myself as an example: I am in the process of renovating a house. I have more than sufficient investments in my taxable accounts to pay cash without adding to my mortgage. However, there is substantial tax gain built into those investments. Rather than paying tax by liquidating taxable investments, I am using a short term 401k loan for 4 months until bonus season. Interest is paid to myself, and the amount is a small portion of my overall portfolio. My overall market exposure remains the same as opposed to liquidating the same amount of taxable investments. If the worst happened and I received no bonus, I'd simply liquidate the taxable investments as needed. It's purely a tax play.

Regarding car vs 401k loan: In general, I'm incline to say car first. Interest on that loan is paid to a third party, while interest on a 401k loan is paid to yourself. While you can probably beat the car loan in the market, a risk-free 3.7% isn't a bad deal. My advice would be the opposite if there were any significant risk of defaulting on the 401k loan, especially if the loan would be called upon leaving one's employer.
I don’t understand.

If I borrow from my 401k at 7% then I pay back the loan plus 7% and I get to keep the 7%? Sounds like forced savings. The opportunity cost is those funds could have otherwise been invested in the market? So I’m better off with a loan if the market goes down? I think I’m missing something - surely the brokerage gets paid somewhere.
Yes. You've effectively replaced equity in your 401k for a bond that is your obligation. If the market goes down between when you take out the loan and when you pay it off, you will come out ahead. Whether there are fees associated with the loan is dependent on your plan.
Thanks. Doesn’t make it sound all that bad as everyone else is making it seem, as the interest isn’t paid to third party. Then again that market rate of return foregone could be huge....

User avatar
corn18
Posts: 1532
Joined: Fri May 22, 2015 6:24 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by corn18 » Wed Nov 06, 2019 1:16 pm

Clarice wrote:
Wed Nov 06, 2019 1:09 pm
alfaspider wrote:
Wed Nov 06, 2019 9:43 am
Clarice wrote:
Wed Nov 06, 2019 8:50 am
alfaspider wrote:
Tue Nov 05, 2019 3:46 pm
gr7070 wrote:
Tue Nov 05, 2019 10:30 am
As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!
I somewhat disagree. While raiding retirement savings is generally a problem, there are circumstances where retirement borrowing can be done strategically. I will use myself as an example: I am in the process of renovating a house. I have more than sufficient investments in my taxable accounts to pay cash without adding to my mortgage. However, there is substantial tax gain built into those investments. Rather than paying tax by liquidating taxable investments, I am using a short term 401k loan for 4 months until bonus season. Interest is paid to myself, and the amount is a small portion of my overall portfolio. My overall market exposure remains the same as opposed to liquidating the same amount of taxable investments. If the worst happened and I received no bonus, I'd simply liquidate the taxable investments as needed. It's purely a tax play.

Regarding car vs 401k loan: In general, I'm incline to say car first. Interest on that loan is paid to a third party, while interest on a 401k loan is paid to yourself. While you can probably beat the car loan in the market, a risk-free 3.7% isn't a bad deal. My advice would be the opposite if there were any significant risk of defaulting on the 401k loan, especially if the loan would be called upon leaving one's employer.
I don’t understand.

If I borrow from my 401k at 7% then I pay back the loan plus 7% and I get to keep the 7%? Sounds like forced savings. The opportunity cost is those funds could have otherwise been invested in the market? So I’m better off with a loan if the market goes down? I think I’m missing something - surely the brokerage gets paid somewhere.
Yes. You've effectively replaced equity in your 401k for a bond that is your obligation. If the market goes down between when you take out the loan and when you pay it off, you will come out ahead. Whether there are fees associated with the loan is dependent on your plan.
Thanks. Doesn’t make it sound all that bad as everyone else is making it seem, as the interest isn’t paid to third party. Then again that market rate of return foregone could be huge....
I once ran the math on taking out a $50,000 401k loan every year @ 5% to get more into my 401k. The interest paid does not count against the limits. Then I decided it was more work than I wanted to do. So I did nothing.
Don't do something, just stand there!

gr7070
Posts: 417
Joined: Fri Oct 28, 2011 10:39 am

Re: Pay down 7% 403b loan or 3.74% car loan first?

Post by gr7070 » Wed Nov 06, 2019 1:17 pm

Clarice wrote:
Wed Nov 06, 2019 1:09 pm
alfaspider wrote:
Wed Nov 06, 2019 9:43 am
Clarice wrote:
Wed Nov 06, 2019 8:50 am
alfaspider wrote:
Tue Nov 05, 2019 3:46 pm
gr7070 wrote:
Tue Nov 05, 2019 10:30 am
As a rule, a reasonable car loan for a car one can afford isn't a horrible thing. It's certainly not a positive, financially.

Borrowing from retirement funds is just a bad idea, for all but the most dire needs (health, eviction?).

Based upon that alone I'd knock out the 403b loan and never dip into it again. Not even for rental property - which I'm generally a fan of.

Nothing wrong with having fun with your money and even spending on frivolous things. However, one can do these things from ahead of the game, not behind it, and be far better financially doing so.

Catch up. Then don't fall behind again, and you'll be ahead of the game while still living well!
I somewhat disagree. While raiding retirement savings is generally a problem, there are circumstances where retirement borrowing can be done strategically. I will use myself as an example: I am in the process of renovating a house. I have more than sufficient investments in my taxable accounts to pay cash without adding to my mortgage. However, there is substantial tax gain built into those investments. Rather than paying tax by liquidating taxable investments, I am using a short term 401k loan for 4 months until bonus season. Interest is paid to myself, and the amount is a small portion of my overall portfolio. My overall market exposure remains the same as opposed to liquidating the same amount of taxable investments. If the worst happened and I received no bonus, I'd simply liquidate the taxable investments as needed. It's purely a tax play.

Regarding car vs 401k loan: In general, I'm incline to say car first. Interest on that loan is paid to a third party, while interest on a 401k loan is paid to yourself. While you can probably beat the car loan in the market, a risk-free 3.7% isn't a bad deal. My advice would be the opposite if there were any significant risk of defaulting on the 401k loan, especially if the loan would be called upon leaving one's employer.
I don’t understand.

If I borrow from my 401k at 7% then I pay back the loan plus 7% and I get to keep the 7%? Sounds like forced savings. The opportunity cost is those funds could have otherwise been invested in the market? So I’m better off with a loan if the market goes down? I think I’m missing something - surely the brokerage gets paid somewhere.
Yes. You've effectively replaced equity in your 401k for a bond that is your obligation. If the market goes down between when you take out the loan and when you pay it off, you will come out ahead. Whether there are fees associated with the loan is dependent on your plan.
Thanks. Doesn’t make it sound all that bad as everyone else is making it seem, as the interest isn’t paid to third party. Then again that market rate of return foregone could be huge....
In addition to the potential loss when the market has gains, and usually the market makes it's gains in big episodes, if one can afford the loan payment then they'd be better off leaving the investment be, saving up and paying cash, *and* having that 7% interest they paid themselves *in addition to* the market returns.

Make that kind of debt a lifetime habit and that 7% adds up to massive amounts. Not to mention the kind of wasteful spending usually accompanying that attitude and approach.

Even ignoring the last slippery-slope paragraph the first paragraph is a significant difference.

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