Pay off car loan?

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Streptococcus
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Joined: Thu Jan 03, 2013 12:17 am

Pay off car loan?

Post by Streptococcus » Mon Jun 29, 2020 11:10 am

I just sold my house and I’m sitting in a lot of equity. I have no debt except for a car loan that I signed up for a few months ago, a 7 year loan at 4.24%. When I took the loan the plan was to pay it off within the year and that time has come.

So to summarize: I will end up with no debt. portfolio.
Portfolio Info: I’m about 600K away from my number. I have a low 6 figure cash aside for the next home. A saving rate of 80-120K a year, depending on the year. But also, the future of the economy is uncertain and there is a strong argument that the pandemic will come back and wreck havoc on the economy next fall.

My question:
The payoff amount is 29K. Monthly payment is 530.
Would you pay it off entirely?
Would you pay it off partially?

bikesandbeers
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Re: Pay off car loan?

Post by bikesandbeers » Mon Jun 29, 2020 11:25 am

4.24% is pretty high. Obviously you didn't care if the plan was to pay it off quickly. If you have/are investing in any bonds with your 80K a year savings rate, just pay off the car. Given economic uncertainty it would be nice to get rid of the mandatory monthly payment and you get a guaranteed return well above anything else you can get in the market right now.

The only question is if you could benefit for a bigger down payment for your upcoming house purchase. Again you can always increase your down payment with your savings rate.
You could "DCA" down the car loan over the next 6 months if that makes you sleep better

bloom2708
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Re: Pay off car loan?

Post by bloom2708 » Mon Jun 29, 2020 11:26 am

If you have any cash, money market or bonds paying <1%, pay it off.

It sounds like you do. Easy decision. Do it today. Mark it off the "to do" list.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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mmmodem
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Re: Pay off car loan?

Post by mmmodem » Mon Jun 29, 2020 11:28 am

4% is my cutoff for keeping a loan. I have a 2% car loan and a 3.5% home loan. I am paying those off as slow as possible. 4.24%? I'm paying that off as soon as possible.

negwtg
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Re: Pay off car loan?

Post by negwtg » Mon Jun 29, 2020 11:43 am

I see this was posted today at 12:10, it is now 12:41, I hope you have already written the check and put it in the mailbox for pickup by USPS

Jack FFR1846
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Re: Pay off car loan?

Post by Jack FFR1846 » Mon Jun 29, 2020 11:45 am

Besides rip off student loans, I know of no loans higher than 4%. Pay it off, obviously.
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goingup
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Re: Pay off car loan?

Post by goingup » Mon Jun 29, 2020 2:07 pm

I'd pay it off. The only reason to keep it would be you wanted to maintain that $29K of liquidity, or you had something that was returning better than 4.24%. Otherwise, pay it off.

It's liberating to not have monthly installment loans such as car or home. :beer

Trader Joe
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Re: Pay off car loan?

Post by Trader Joe » Mon Jun 29, 2020 7:44 pm

Streptococcus wrote:
Mon Jun 29, 2020 11:10 am
I just sold my house and I’m sitting in a lot of equity. I have no debt except for a car loan that I signed up for a few months ago, a 7 year loan at 4.24%. When I took the loan the plan was to pay it off within the year and that time has come.

So to summarize: I will end up with no debt. portfolio.
Portfolio Info: I’m about 600K away from my number. I have a low 6 figure cash aside for the next home. A saving rate of 80-120K a year, depending on the year. But also, the future of the economy is uncertain and there is a strong argument that the pandemic will come back and wreck havoc on the economy next fall.

My question:
The payoff amount is 29K. Monthly payment is 530.
Would you pay it off entirely?
Would you pay it off partially?
I would immediately pay off the car loan and I would live my life debt free moving forward.

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galving
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Location: US Gulf Coast

Re: Pay off car loan?

Post by galving » Tue Jun 30, 2020 7:27 am

Streptococcus wrote:
Mon Jun 29, 2020 11:10 am
I just sold my house and I’m sitting in a lot of equity. I have no debt except for a car loan that I signed up for a few months ago, a 7 year loan at 4.24%. When I took the loan the plan was to pay it off within the year and that time has come.

So to summarize: I will end up with no debt. portfolio.
Portfolio Info: I’m about 600K away from my number. I have a low 6 figure cash aside for the next home. A saving rate of 80-120K a year, depending on the year. But also, the future of the economy is uncertain and there is a strong argument that the pandemic will come back and wreck havoc on the economy next fall.

My question:
The payoff amount is 29K. Monthly payment is 530.
Would you pay it off entirely?
Would you pay it off partially?
Yes pay it off.
Why do you have a car loan?

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btq96r
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Re: Pay off car loan?

Post by btq96r » Tue Jun 30, 2020 7:32 am

Pay it off. Too many benefits in having no car payment if the vehicle is still reliable for a while; especially in the current uncertainty we live in.

I've always found playing the interest rate return game too cute by half when I can save money by not having an APR% in the mix.
Moderation is for Canadians.

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grabiner
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Re: Pay off car loan?

Post by grabiner » Tue Jun 30, 2020 5:29 pm

Paying it off is a risk-free and tax-free return of 4.24%. Given current rates, that is an extremely good return.

The only issue is whether you might need the money for your next home to get 20% down. If you are confident that you can put 20% down on the next home, paying off the car is a good deal; if you have to borrow a bit more on the mortgage instead, that will be debt at a lower rate, with a longer term, and may be tax-deductible. (Also, getting rid of the car loan may help you qualify for larger mortgage payments; this might be the difference between being able to take a 15-year mortgage and needing a 30-year mortgage at a higher rate.)
Wiki David Grabiner

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