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How fast should I pay off auto loan?
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Last: 2 yr ago by 62strat
I have no debt, so you can guess what my answer would be
pay it off NOW.
then use the $600/ month to dollar cost average into "something"
then use the $600/ month to dollar cost average into "something"
If the vehicle was at 3-4%...maybe let it ride if you have somewhere else to park your money where it's earning more. At 7%...I think you pay it off if you have the means.
Another way to think about it is how liquid are you? If very liquid, probably pay it off.
If not, I think of it this way... Money market funds are ~5% right now, CDs about 5.3. So, 7% is costing you somewhere in the 1.7%-2.0% range to stay liquid for the amount of the loan. If rates rise next week, your "cost of capital" goes down. Is it worth 1.0-1.5% to be liquid $30k should you need it?
If not, I think of it this way... Money market funds are ~5% right now, CDs about 5.3. So, 7% is costing you somewhere in the 1.7%-2.0% range to stay liquid for the amount of the loan. If rates rise next week, your "cost of capital" goes down. Is it worth 1.0-1.5% to be liquid $30k should you need it?
Auto loan ???
Really ???
- D.R. In Tennessee
Really ???
- D.R. In Tennessee
Saltyag15 said:
If the vehicle was at 3-4%...maybe let it ride if you have somewhere else to park your money where it's earning more. At 7%...I think you pay it off if you have the means.
Yep, too high of interest rate for something like a car to pay that much monthly. Pay it off now. What was the reason for not paying cash for it upfront?
Capital one will refinance that car for you for closer to 4%. I basically get all my auto loans from them, as they are consistently 2% or more lower than any dealerships and you can get preapproved before you even go to the dealership.
If you refinance to 4% or less, you can probably earn more with you cash and just let it ride. At 7%, you should definitely pay it off ASAP.
If you refinance to 4% or less, you can probably earn more with you cash and just let it ride. At 7%, you should definitely pay it off ASAP.
Pay it now. I typically finance thru the dealer (best way to get the best price on the car) then pay it off immediately. Did this twice this year, one rate at 6.5% and one at 4%. Paid both off at the first statement
'Never finance a depreciating asset.' Warren Buffett
I would pay it off immediately.
I would pay it off immediately.
Look to refinance at a rate less than inflation if you are good with monthly payments.
If you have the means and the cash, pay off at the 7% rate as fast as possible.
If you have the means and the cash, pay off at the 7% rate as fast as possible.
Do you really make money at 4% loan and earning interest at 5%? You are paying income tax on the interest, but not getting the deduction on the loan.
Slim Jimbo said:
Recently bought a new to me vehicle, outstanding balance $32K at 7.1% interest rate (have 820 credit score but this is what dealer gave me)... Have the cash to pay it off. No other debt besides mortgage at roughly 3%. Car payment is $600/mo.
Seems like a no brainer to pay it off, but haven't given it much thought yet. Could look to see if CU rates are better & refinance & invest some cash vs. paying it off in full at once.
Did you just not shop this around at all before signing with the dealer?
Not like it's urgent if he's got the liquidity to pay it off anyway.
Similar to what has been mentioned above, I typically compare the loan rate to the current interest rate on high yield savings or CDs. For most of the duration of my wife's auto loan, those rates significantly exceeded the interest rate on the auto loan so it just seemed silly to pay off. Given all of the rates should be somewhat correlated, I suppose hitting this right just depends on the tenor of the loan (hopefully not more than 5 years), and which way rates are headed over that time. At any rate, you can't get the liquidity back, but you can always change your mind and pay it off later if you want or need.
Similar to what has been mentioned above, I typically compare the loan rate to the current interest rate on high yield savings or CDs. For most of the duration of my wife's auto loan, those rates significantly exceeded the interest rate on the auto loan so it just seemed silly to pay off. Given all of the rates should be somewhat correlated, I suppose hitting this right just depends on the tenor of the loan (hopefully not more than 5 years), and which way rates are headed over that time. At any rate, you can't get the liquidity back, but you can always change your mind and pay it off later if you want or need.
Surely the wife wants to use that money instead for a kitchen renovation?Slim Jimbo said:
Recently bought a new to me vehicle, outstanding balance $32K at 7.1% interest rate (have 820 credit score but this is what dealer gave me)... Have the cash to pay it off. No other debt besides mortgage at roughly 3%. Car payment is $600/mo.
Emergency fund taken care of, max 401k, HSA, etc.. Simply debating if I want to pay it all at once or pay it off in something like $10K increments over the course of the next year.
Seems like a no brainer to pay it off, but haven't given it much thought yet. Could look to see if CU rates are better & refinance & invest some cash vs. paying it off in full at once.
Any thoughts?
No brainer. Pay it off.
Pay it off now and put the 600 a month you'll have access to into your mortgage or a taxable account. I really dont like doing auto loans so I've probably only had a loan for 2 years total over the last 18 years, and I won't get another one for another 12 years since I just bought a truck 3 years ago. By then I'll probably be retired and just pay cash
I refinanced my mortgage a couple years ago at 2% for a 15 year so I'm already paying the extra there in what it was at 4.25%
Living without an auto loan is the way to go
I refinanced my mortgage a couple years ago at 2% for a 15 year so I'm already paying the extra there in what it was at 4.25%
Living without an auto loan is the way to go
Having sold exotic cars in the past it "sounds like" they cleaned up on financing. Dealerships make a lot on financing. With an 800+ credit score I'm 99% sure you could have done substantially better with a credit union. Pay it off.
Slim Jimbo said:
Recently bought a new to me vehicle, outstanding balance $32K at 7.1% interest rate (have 820 credit score but this is what dealer gave me)... Have the cash to pay it off. No other debt besides mortgage at roughly 3%. Car payment is $600/mo.
Emergency fund taken care of, max 401k, HSA, etc.. Simply debating if I want to pay it all at once or pay it off in something like $10K increments over the course of the next year.
Seems like a no brainer to pay it off, but haven't given it much thought yet. Could look to see if CU rates are better & refinance & invest some cash vs. paying it off in full at once.
Any thoughts?
Where else can you earn 7.1% risk free? You can't. Pay it off.
Man, 7% on a vehicle.. ouch.
I have 7% on my trailer, but it was only $11k principal ($87 biweekly)
That rate still made me twitch some, so I put $3k down on first statement back in Dec and I'll do another $3k this Dec. Then at end of year 2 I'll pay the remaining ~$1000 off.
That brings the 73 month loan down to about 26.
My truck is 0%, and my house is 2.6%.
I have 7% on my trailer, but it was only $11k principal ($87 biweekly)
That rate still made me twitch some, so I put $3k down on first statement back in Dec and I'll do another $3k this Dec. Then at end of year 2 I'll pay the remaining ~$1000 off.
That brings the 73 month loan down to about 26.
My truck is 0%, and my house is 2.6%.
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