Pay off car?

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Ophiuchus
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Pay off car?

Post by Ophiuchus » Wed May 06, 2020 1:18 pm

I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?

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FiveK
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Re: Pay off car?

Post by FiveK » Wed May 06, 2020 1:23 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
Are there any other reasons to pay it off early other than psychological?
Not at 0%.

lazydavid
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Re: Pay off car?

Post by lazydavid » Wed May 06, 2020 1:24 pm

Especially in uncertain times like now, I would much rather have $14k in cash and $14k in debt at 0%, than not having either. Liquidity=options.

bgf
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Re: Pay off car?

Post by bgf » Wed May 06, 2020 1:55 pm

We have like $5k at 3.7% on a car loan, and I'm putting extra money in the 529. State tax deduction at marginal rate of 5.75% beats the car loan.

I'd pay off the car loan before investing in taxable.

I'd keep 0% loan for as long as I can.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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willthrill81
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Re: Pay off car?

Post by willthrill81 » Wed May 06, 2020 1:58 pm

Put the $14k in a high-yield savings account. That way, you'll earn some interest at least and retain liquidity.

Another approach that would earn more money is to open bank accounts with sign-up bonuses using the $14k. You could earn hundreds of dollars per year doing this, far more than the interest from even a high-yield savings account. Here is a list of many of them.
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gr7070
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Re: Pay off car?

Post by gr7070 » Wed May 06, 2020 2:05 pm

Meh. It really doesn't matter much either way. Way, way too much consideration is given to low principal, low rate, short term financing - on both sides of the argument.

Shoot too much consideration is probably given to the mortgage/no-mortgage discussion and there's significant money involved there.

As long as you're not wasting your money these are all good options.

Do whichever you prefer.
Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I don't like the idea of debt
I'm a pay-off debt guy; so long as one is saving appropriately for retirement, especially if that means maxing legal tax-advantaged limits.

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Watty
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Re: Pay off car?

Post by Watty » Wed May 06, 2020 2:34 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
Are there any other reasons to pay it off early other than psychological?
Paying it off could improve your credit if you will be doing something like applying for home mortgage.

With a paid off car you can have a smaller emergency fund. For example if you have a six month emergency fund then it could be smaller by six months car payment. Of course if you just had that $14K in money market instead you could also just use that in an emergency. That might seem to be a wash but if your car payment is $500 a month that would mean that you would need an emergency fund that is $3,000 higher. If the car was paid off then that $3,000 could be invested in something like stocks which is likely to have a higher yield.

Don't be quick to dismiss the value of the psychological benefits as just nebulous "warm and fuzzies" that is not worth much. Having it paid off would also affect your overall approach towards money and your habits which can have a real impact on your future investing.

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abuss368
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Re: Pay off car?

Post by abuss368 » Wed May 06, 2020 2:36 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
I don't like debt either but it is 0.00%.

Hard to answer your question based on information provided. How are your cash reserves? Are you building cash?
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

inbox788
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Re: Pay off car?

Post by inbox788 » Wed May 06, 2020 2:40 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
What the $14k doing right now? You're making more than $40 putting that $14k to work. You're trying to talk yourself into throwing away earnings? And you'd be assuming risk if you raised that deductible. Stop listening to yourself! At 1%, you earn $140 and can afford the $40 extra insurance and spend the rest on taxes and lunches (take out).

Topic Author
Ophiuchus
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Re: Pay off car?

Post by Ophiuchus » Wed May 06, 2020 3:02 pm

inbox788 wrote:
Wed May 06, 2020 2:40 pm
Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
What the $14k doing right now? You're making more than $40 putting that $14k to work. You're trying to talk yourself into throwing away earnings? And you'd be assuming risk if you raised that deductible. Stop listening to yourself! At 1%, you earn $140 and can afford the $40 extra insurance and spend the rest on taxes and lunches (take out).
The 14K is currently sitting in Vanguard High-Yield Tax-Exempt (VWALX)
I posted to try and convince myself NOT to pay it off even though a part of my wants to pay it off to be done with it. I didn't know if there would be other reasons to pay it off early that were not strictly interest rate driven

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Ophiuchus
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Re: Pay off car?

Post by Ophiuchus » Wed May 06, 2020 3:04 pm

Ophiuchus wrote:
Wed May 06, 2020 3:02 pm
inbox788 wrote:
Wed May 06, 2020 2:40 pm
Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
What the $14k doing right now? You're making more than $40 putting that $14k to work. You're trying to talk yourself into throwing away earnings? And you'd be assuming risk if you raised that deductible. Stop listening to yourself! At 1%, you earn $140 and can afford the $40 extra insurance and spend the rest on taxes and lunches (take out).
The 14K is currently sitting in Vanguard High-Yield Tax-Exempt (VWALX)
I posted to try and convince myself NOT to pay it off even though a part of my wants to pay it off to be done with it. I didn't know if there would be other reasons to pay it off early that were not strictly interest rate driven
abuss368 wrote:
Wed May 06, 2020 2:36 pm

I don't like debt either but it is 0.00%.

Hard to answer your question based on information provided. How are your cash reserves? Are you building cash?
Cash reserves are adequate. Everything else is funded to the max (401k, 457, backdoor roth)

mega317
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Re: Pay off car?

Post by mega317 » Wed May 06, 2020 3:06 pm

We just paid off the remaining ~10k on two cars at 1.9%. We have lower monthly expenses but also 10k less in the bank. I don't feel particularly warm, fuzzy, or different in any way. I suppose in normal times, the first time I tally monthly expenses and it's a little lower I would have a little jolt of dopamine. But now there is going to be no daycare, a smaller mortgage payment after refinancing, no expenses for travel or activities, so actually having no car payment will be lost in the noise.

BOTH lenders mistakenly took an additional monthly payment after the loans were paid off and dealing with that has definitely made it not worth it lol. One was my fault and one wasn't.
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gr7070
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Re: Pay off car?

Post by gr7070 » Wed May 06, 2020 3:12 pm

Ophiuchus wrote:
Wed May 06, 2020 3:04 pm
Cash reserves are adequate. Everything else is funded to the max (401k, 457, backdoor roth)
Even easier! Dump the debt!

With that excellent personal finance base, income, and savings I'd get out of debt and never get back in.

I'd plow any extra taxable into the mortgage, too.

We have 4 tax-advantaged plans plus Roths, that we, unfortunately, can't afford to max. With you maxing your tax-advantaged options I wouldn't have any qualms about paying down all debt with taxable monies.

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Re: Pay off car?

Post by abuss368 » Wed May 06, 2020 3:17 pm

Ophiuchus wrote:
Wed May 06, 2020 3:04 pm
Ophiuchus wrote:
Wed May 06, 2020 3:02 pm
inbox788 wrote:
Wed May 06, 2020 2:40 pm
Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
What the $14k doing right now? You're making more than $40 putting that $14k to work. You're trying to talk yourself into throwing away earnings? And you'd be assuming risk if you raised that deductible. Stop listening to yourself! At 1%, you earn $140 and can afford the $40 extra insurance and spend the rest on taxes and lunches (take out).
The 14K is currently sitting in Vanguard High-Yield Tax-Exempt (VWALX)
I posted to try and convince myself NOT to pay it off even though a part of my wants to pay it off to be done with it. I didn't know if there would be other reasons to pay it off early that were not strictly interest rate driven
abuss368 wrote:
Wed May 06, 2020 2:36 pm

I don't like debt either but it is 0.00%.

Hard to answer your question based on information provided. How are your cash reserves? Are you building cash?
Cash reserves are adequate. Everything else is funded to the max (401k, 457, backdoor roth)
Pay it off!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

reln
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Re: Pay off car?

Post by reln » Wed May 06, 2020 3:20 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
All else equal don't pay it off. You can earn a small interest on that money safely.

If you are really going to raise your deductible to 2k, then evaluate: after tax risk free interest on the car note less the savings on the car insurance by raising the deductible. When this value goes negative for a few months in a row, pay off your car note.

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ElBarto
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Re: Pay off car?

Post by ElBarto » Wed May 06, 2020 3:24 pm

Ophiuchus wrote:
Wed May 06, 2020 3:02 pm
inbox788 wrote:
Wed May 06, 2020 2:40 pm
Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
What the $14k doing right now? You're making more than $40 putting that $14k to work. You're trying to talk yourself into throwing away earnings? And you'd be assuming risk if you raised that deductible. Stop listening to yourself! At 1%, you earn $140 and can afford the $40 extra insurance and spend the rest on taxes and lunches (take out).
The 14K is currently sitting in Vanguard High-Yield Tax-Exempt (VWALX)
I posted to try and convince myself NOT to pay it off even though a part of my wants to pay it off to be done with it. I didn't know if there would be other reasons to pay it off early that were not strictly interest rate driven
For a relatively small loan such as this (small in the grans scheme of your future wealth.) I think the decision should come from what you value.
$14k loan arbitrage via VWALX has a pretty decent yield though year to date is -2.7%. This is not a "safe investment" to arbitrage the loan and you may lose some money or you may get a pretty decent yield, who knows. You can get a 1.5% online saving account and put the $14k there which is guaranteed. $14k at 1.5% is $350 of which you will need to pay taxes of I will just assume 30% federal and state bringing you down to $220.

How valuable is $220? That is the question you need to ask yourself. If $220 is worth the minor effort of keeping the debt, then keep the debt.
I would personally just pay it off as I do not like having consumer debt.

grettman
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Re: Pay off car?

Post by grettman » Wed May 06, 2020 3:31 pm

Pay it off.

Trader Joe
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Re: Pay off car?

Post by Trader Joe » Wed May 06, 2020 6:50 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
I live my life completely debt free. Zero debt. I feel free and this feeling is wonderful.

I would pay off all debt.

Helo80
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Re: Pay off car?

Post by Helo80 » Wed May 06, 2020 6:56 pm

Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?


Even if the loan were at 0.9%, you'd be at what, $135 of interest per year? Being able to borrow money at 0%-0.9%, Dave Ramsey would chide you for doing so, but Dave Ramsey went bankrupt because he over leveraged himself in his 20's (mistakes that he fully admits to).

If you're not prone to having huge or any amount of debt, if you've never taken multiple statements to pay off CCs and what not... it's fine.

Helo80
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Re: Pay off car?

Post by Helo80 » Wed May 06, 2020 6:58 pm

Ophiuchus wrote:
Wed May 06, 2020 3:02 pm
The 14K is currently sitting in Vanguard High-Yield Tax-Exempt (VWALX)
I posted to try and convince myself NOT to pay it off even though a part of my wants to pay it off to be done with it. I didn't know if there would be other reasons to pay it off early that were not strictly interest rate driven
If you have the cash ready to go in case the bank called the loan tomorrow, I'd just let it do what it does.

TallBoy29er
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Re: Pay off car?

Post by TallBoy29er » Wed May 06, 2020 10:00 pm

reln wrote:
Wed May 06, 2020 3:20 pm
Ophiuchus wrote:
Wed May 06, 2020 1:18 pm
I currently have about 14 K left on my car. It is at 0 APR. I don't like the idea of debt but I can't currently talk myself into paying it off because it is at 0%. I remember my insurance saying I could only have a 1K deductible if I am carrying a loan but can go up to 2K deductible if it is paid off. Saving like 40 bucks a year. Are there any other reasons to pay it off early other than psychological?
All else equal don't pay it off. You can earn a small interest on that money safely.

If you are really going to raise your deductible to 2k, then evaluate: after tax risk free interest on the car note less the savings on the car insurance by raising the deductible. When this value goes negative for a few months in a row, pay off your car note.
A high yield cd at Ally for 18 months earns....drum roll...1.5%. Interest rates for savings are near zero, just like your loan interest rate. Personally, I prefer to be indebted to no one. This really comes down to your preference. There is no right answer. Mathematically, probably better to keep the loan at 0%, even though I would not do it.

catlady
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Re: Pay off car?

Post by catlady » Wed May 06, 2020 10:11 pm

We’re in a similar situation with about 6 months left on a 0% car loan. I’m extremely debt averse but I can’t bring myself to not keep the “free” loan. There might have been some benefits to not getting that loan originally, like a cheaper purchase price, but that’s a sunk cost at this point.

boomer_techie
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Re: Pay off car?

Post by boomer_techie » Thu May 07, 2020 6:40 am

lazydavid wrote:
Wed May 06, 2020 1:24 pm
Especially in uncertain times like now, I would much rather have $14k in cash and $14k in debt at 0%, than not having either.
In really uncertain times (i.e. Great Depression level) I'd rather have neither: The $14K cash could be in a bank account from which you can't withdraw (because the bank is insolvent, and the FDIC is broke and/or is picking up bigger fish) - or the $14K debt could be with a defunct lender whom you can't pay and who isn't around to give you a clear title.

lazydavid
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Re: Pay off car?

Post by lazydavid » Thu May 07, 2020 6:57 am

boomer_techie wrote:
Thu May 07, 2020 6:40 am
lazydavid wrote:
Wed May 06, 2020 1:24 pm
Especially in uncertain times like now, I would much rather have $14k in cash and $14k in debt at 0%, than not having either.
In really uncertain times (i.e. Great Depression level) I'd rather have neither: The $14K cash could be in a bank account from which you can't withdraw (because the bank is insolvent, and the FDIC is broke and/or is picking up bigger fish) - or the $14K debt could be with a defunct lender whom you can't pay and who isn't around to give you a clear title.
The $14k is with Vanguard. If they're insolvent and we're unable to withdraw, we're all completely screwed, regardless of whether we have a car note or not.

LKB_Mgmt_est2012
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Re: Pay off car?

Post by LKB_Mgmt_est2012 » Thu May 07, 2020 7:58 am

I've been having the same internal debate myself. I have $20k left on my car loan @ 1.5% with $20k sitting in a low interest savings account. (retirement funded, emergency savings funded, car loan and mortgage @ 2.75% are my only debts). Part of me wants to just pay off the car so I can re-direct that $500 monthly payment to the mortgage. However, during this crisis, my job isn't 100% safe so having an additional $20k on top of the emergency savings seems like the safe bet at the moment. Currently, I'm just in a holding pattern.

Fast-forward to if/when this all passes, if I still have a job, should I use the money to dump the car loan and focus my attention on the mortgage? *My wife will be my biggest obstacle, as she wants to use this money to do some remodeling....God help me :)

Reading this thread has been helpful, but it's also eye-opening that so many people having differing views on low-interest debts. Seems like it's just a personal preference to carry a debt like that or not. I don't like debt so it should be an easy answer, but I'm also hyper-analytical and always want to get the best bang for my buck and that's what causes the indecisiveness.

Mako52
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Re: Pay off car?

Post by Mako52 » Thu May 07, 2020 8:29 am

I was recently earning 2% with PNC and that has quickly and recently gone to 0.67%. The decision to pay off a 3.49% 17k balance car loan just got a lot easier.

gr7070
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Re: Pay off car?

Post by gr7070 » Thu May 07, 2020 10:47 am

Mako52 wrote:
Thu May 07, 2020 8:29 am
I was recently earning 2% with PNC and that has quickly and recently gone to 0.67%. The decision to pay off a 3.49% 17k balance car loan just got a lot easier.
It was pretty easy at 2%. ; )

And that 3.49% is tax-free earnings.

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