Should I pay off the old car loan or no - 1 year left

[mander75]

Hi Fam - here is the situation. I have a “premium” (EU brand) used car. I got it back in 2018. Still paying the loan which is due Dec-2024. Interest is 4.9%.

I recently got a bonus.

Question: should I pay it off? I understand at at this stage I am mainly paying principal as the loan is “old”. Principal amount remaining is $6000.

Thank you.

[aerosurfer]

You got a 72 month loan... the damage is already done, like you say they have made the majority of their interest money off you.

That being said, not really enough info to recommend what to do. Do you already max out other tax advantage space? Have you filled a roth for this year (or plan to next year). If no to either, i would raise 401k pretax contributions. If you havent recieved the bonus yet, see if it can be deposited into that account. If you have, raise future contributions from your paycheck and live off the difference from the bonus.

After that, any other debt with a higher rate? Once all that has a plan, i would definately consider clearing out the car loan

[markjk]

Question: should I pay it off? I understand at at this stage I am mainly paying principal as the loan is “old”. Principal amount remaining is $6000.

You can check a loan amortization table on a site like bank rate to see exactly how much you are paying in interest over the next year. If it means a lot to you to pay it off and simplify your bills, there is nothing wrong with paying it off. That satisfaction and simplification holds value. How much value of course is up to you. If you don't feel the need to pay it off right now, I'd put that $6000 in a 1 year (or longer) treasury bill, CD, etc. That way you'd make back some of what you paid on the car loan over the next year.

[Sandtrap]

Hi Fam - here is the situation. I have a “premium” (EU brand) used car. I got it back in 2018. Still paying the loan which is due Dec-2024. Interest is 4.9%.

I recently got a bonus.

Question: should I pay it off? I understand at at this stage I am mainly paying principal as the loan is “old”. Principal amount remaining is $6000.

Thank you.

to OP:
question:
"If" you pay off the loan right now, at 6000 dollars, will there then be an urge to spend more on other things now that that monthly payment is gone?

If no...then pay off the loan now. Take what you had been paying in a monthly payment, and add that every month to your savings portfolio, etc. "time to save".

If yes...then keep the loan.

j

[Olemiss540]

I'd get rid of the loan.

[lakpr]

Car loans are not tax deductible. Therefore paying off the car loan is exactly equivalent to buying a 1 year CD with an after-tax yield of 4.9%. Or, in a 22% tax bracket, the equivalent of finding a CD offer that yields 6.3%. Higher if you have a state income tax and/or in a higher Federal tax bracket

If a bank offers you 6.5% CD for 1 year, the only catch being max investment is limited to $6,000, will you be tempted? If you think you will be, payoff the loan.

[Jack FFR1846]

Avalanche method asks "What is your highest effective interest debt?". Whatever that is, any extra money you have at the end of the month goes to that debt. Could you get more income by keeping the loan and investing somewhere else? Well, when I was paying off debts, I added the word "guaranteed". So if your effective interest from some high yield savings or CD or whatever really is higher than the mortgage, then you'd want to do that. If not, then pay off the mortgage. We started paying debt when we married and bought a house, had personal loans, car loans and student loans. Simply paying the highest interest debt consistently, we ended up with the mortgage as our only debt. I left a job and cashed stock options which paid off the mortgage. That was when I was 45. Now, at 66, we've both just retired with $4M in savings.

[lthenderson]

Question: should I pay it off?

The cost difference to you between paying off the debt now or continuing the payments is probably very insignificant to your overall budget so I would recommend doing whatever makes you sleep better at night.

[hudson]

Hi Fam - here is the situation. I have a “premium” (EU brand) used car. I got it back in 2018. Still paying the loan which is due Dec-2024. Interest is 4.9%.

I recently got a bonus.

Question: should I pay it off? I understand at at this stage I am mainly paying principal as the loan is “old”. Principal amount remaining is $6000.

Thank you.

Pay it off? Consider double payments out of current income.
My practice with a windfall is to invest it in high quality fixed income and leave it there forever...as possible.