View Poll Results: Pay of the 2IS or Keep the Money
Voters: 66. You may not vote on this poll
Pay off the 2IS or keep the money
04-21-08, 02:41 PM
#46
Let me know what you think?
Pay off the 2IS (~24K) or keep the money in the banck and continue to make my $560 payments for the next 3 1/2 years....
If I pay it off then, at 24, I'll have only $2K in the bank instead of the $26K....Obviously I'll be able to save up that much faster though.
My Job is secure at least for the next 1-2 years....
What do you think?
Pay off the 2IS (~24K) or keep the money in the banck and continue to make my $560 payments for the next 3 1/2 years....
If I pay it off then, at 24, I'll have only $2K in the bank instead of the $26K....Obviously I'll be able to save up that much faster though.
My Job is secure at least for the next 1-2 years....
What do you think?
I paid off my SC300 and it was a wonderful feeling. However, I had plenty of money left. Looks like you know what you want to do, just do it!
04-21-08, 06:32 PM
#47
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I'm with ToothDoc unless I don't completely understand the interest rate stuff on the loan.
With 24k left on the loan and 24k in cash...
If you save it in a 5% savings account, then after one month, you owe 6%/12 months = .5% interest on the 24k left on the loan + money towards the principal. You use the 24k that you have in savings to pay towards principal... but on that 24k, you only got 5%/12 = ~.42%. You're getting less interest from your savings than you owe in interest. From a sheer numbers standpoint, not paying it off and having a return of < 6% means you'll be paying more out of pocket.
Am I missing something?
With 24k left on the loan and 24k in cash...
If you save it in a 5% savings account, then after one month, you owe 6%/12 months = .5% interest on the 24k left on the loan + money towards the principal. You use the 24k that you have in savings to pay towards principal... but on that 24k, you only got 5%/12 = ~.42%. You're getting less interest from your savings than you owe in interest. From a sheer numbers standpoint, not paying it off and having a return of < 6% means you'll be paying more out of pocket.
Am I missing something?
The numbers the original poster gave don't really come out right, but using the auto calculator at Bankrate, if you have a $24,000 loan at 6.24%, after 3 1/2 years you would have paid $2,778 in interest.
I used a couple different compounding calculators, and with an initial balance of $24,000, after 3 1/2 years earning 5% it would equal $28,579. That's a gain of $4,579. This assumes, of course, that he's making his car payment out of his monthly income, rather than pulling from his investments. Additionally, he'll have that cash on hand if he falls on hard times, or he decides to buy a house, etc.
nighthawk, like I said, don't listen to anyone here, including me. There's so much bad advice here, and so many people don't understand money, that it's making my head spin. Do your own research (not on a car board) and make your decision. Unfortunately, it's not necessarily even as easy as going to a financial advisor, as he may sell you high commission products also. Do a lot of reading and learn for yourself.
edit: To be fair, I didn't include what he would earn if he invested his car payments if he paid off the car now. If you only made 5% you would make more than the other scenario. But you should be able to make more than 5% with a properly diversified portfolio.
Last edited by jackblack7; 04-21-08 at 07:10 PM.
04-21-08, 07:38 PM
#48
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Bottom line to me: You can't eat the car, wear the car, or (comfortably) live in the car, and it won't help you pay your utilities, or cover your medical bills if something happens with your job and you get sick.
If people want to pay off their cars, more power to them. But you are talking about spending nearly all your money to do so. And that doesn't make sense to me.
If people want to pay off their cars, more power to them. But you are talking about spending nearly all your money to do so. And that doesn't make sense to me.
04-21-08, 07:41 PM
#49
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With only 26k in savings I would certainly not recommend paying off your car and leaving yourself with only 2 grand in the bank!!! How could you sleep at night? Keep the cash, pay to borrow, have peace of mind that if something unforseen comes up in life you have a cushion. Yes, you will save some money in the long run if you pay your car off now. But with those figures you expose yourself to way to much risk IMO. Good luck with your decision. Do what you feel makes sense to you.
04-21-08, 07:50 PM
#50
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What your missing is that the interest on the auto loan would go down every time he makes a payment, while the interest earned on the investment would increase due to compounding.
The numbers the original poster gave don't really come out right, but using the auto calculator at Bankrate, if you have a $24,000 loan at 6.24%, after 3 1/2 years you would have paid $2,778 in interest.
I used a couple different compounding calculators, and with an initial balance of $24,000, after 3 1/2 years earning 5% it would equal $28,579. That's a gain of $4,579. This assumes, of course, that he's making his car payment out of his monthly income, rather than pulling from his investments. Additionally, he'll have that cash on hand if he falls on hard times, or he decides to buy a house, etc.
nighthawk, like I said, don't listen to anyone here, including me. There's so much bad advice here, and so many people don't understand money, that it's making my head spin. Do your own research (not on a car board) and make your decision. Unfortunately, it's not necessarily even as easy as going to a financial advisor, as he may sell you high commission products also. Do a lot of reading and learn for yourself.
edit: To be fair, I didn't include what he would earn if he invested his car payments if he paid off the car now. If you only made 5% you would make more than the other scenario. But you should be able to make more than 5% with a properly diversified portfolio.
The numbers the original poster gave don't really come out right, but using the auto calculator at Bankrate, if you have a $24,000 loan at 6.24%, after 3 1/2 years you would have paid $2,778 in interest.
I used a couple different compounding calculators, and with an initial balance of $24,000, after 3 1/2 years earning 5% it would equal $28,579. That's a gain of $4,579. This assumes, of course, that he's making his car payment out of his monthly income, rather than pulling from his investments. Additionally, he'll have that cash on hand if he falls on hard times, or he decides to buy a house, etc.
nighthawk, like I said, don't listen to anyone here, including me. There's so much bad advice here, and so many people don't understand money, that it's making my head spin. Do your own research (not on a car board) and make your decision. Unfortunately, it's not necessarily even as easy as going to a financial advisor, as he may sell you high commission products also. Do a lot of reading and learn for yourself.
edit: To be fair, I didn't include what he would earn if he invested his car payments if he paid off the car now. If you only made 5% you would make more than the other scenario. But you should be able to make more than 5% with a properly diversified portfolio.
04-22-08, 05:20 PM
#52
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I'd like to think I'm OK with numbers, but I'm a programmer and not finance. (I'm Asian though, does that count?).
Saving Calculator (BankRate doesn't do half years...)
Loan Calculator
Monthly payments on the loan would be: 637.69
Let's consider a few cases:
Case 1: Pay off the money now, invest the money that he would've used for payments instead at 6.25%, the same as his interest rate.
If you invest $637.69/month, you'll have saved up $29851.70 at the end of 3.5 years.
$3068.72 gained in interest
Case 2: Don't pay it off, use your normal income to pay off the loan, and use the 24k invest.
End result of compounding 6.25% interest on 24,000 for 3.5 years: $29851.53
$5851.53 gained in interest (taxable)
Case 3: Don't pay it off and use only money and interest from the 24k to pay off the loan.
End result - $0. I made an excel spreadsheet for this cuz nowhere else seems to have it, but the reasoning is simple. If the loan is 6.25% and your return is 6.25%, at the end of one month, the interest on the loan goes up exactly the same as the interest on your investment. Subtract the monthly payment from both sides, and do it again every month.
If you notice, with a loan rate of 6.25% and a return on your investments of 6.25%, you break even with either option. Higher/lower returns on your investment will skew your options one way or another.
Another piece of information would be taxes on interest. In Case 1 where you pay off your car now, there's only $3068.72 of interest to pay taxes on. In case 2, there's $5851.53 to pay taxes on. I don't think there's any tax breaks for interest on a car loan, so paying that interest doesn't help you much.
Ok, this time I was a little bit more thorough. I still haven't thrown in inflation, but the rest of the numbers are there. As far as getting investments that are higher than your loan rate... beats the heck out of me. I've seen savings accounts online as high as 5.xx percent (I have Emigrant Direct), but it still doesn't match up with the loan interest rate.
I was lucky and I got a 5.2% loan from a credit union, but I didn't have any guaranteed >5.2% investments so I paid off my car as quickly as I could.
Saving Calculator (BankRate doesn't do half years...)
Loan Calculator
Monthly payments on the loan would be: 637.69
Let's consider a few cases:
Case 1: Pay off the money now, invest the money that he would've used for payments instead at 6.25%, the same as his interest rate.
If you invest $637.69/month, you'll have saved up $29851.70 at the end of 3.5 years.
$3068.72 gained in interest
Case 2: Don't pay it off, use your normal income to pay off the loan, and use the 24k invest.
End result of compounding 6.25% interest on 24,000 for 3.5 years: $29851.53
$5851.53 gained in interest (taxable)
Case 3: Don't pay it off and use only money and interest from the 24k to pay off the loan.
End result - $0. I made an excel spreadsheet for this cuz nowhere else seems to have it, but the reasoning is simple. If the loan is 6.25% and your return is 6.25%, at the end of one month, the interest on the loan goes up exactly the same as the interest on your investment. Subtract the monthly payment from both sides, and do it again every month.
If you notice, with a loan rate of 6.25% and a return on your investments of 6.25%, you break even with either option. Higher/lower returns on your investment will skew your options one way or another.
Another piece of information would be taxes on interest. In Case 1 where you pay off your car now, there's only $3068.72 of interest to pay taxes on. In case 2, there's $5851.53 to pay taxes on. I don't think there's any tax breaks for interest on a car loan, so paying that interest doesn't help you much.
Ok, this time I was a little bit more thorough. I still haven't thrown in inflation, but the rest of the numbers are there. As far as getting investments that are higher than your loan rate... beats the heck out of me. I've seen savings accounts online as high as 5.xx percent (I have Emigrant Direct), but it still doesn't match up with the loan interest rate.
I was lucky and I got a 5.2% loan from a credit union, but I didn't have any guaranteed >5.2% investments so I paid off my car as quickly as I could.
Last edited by AznJason; 04-22-08 at 05:33 PM. Reason: Added Case 3
for the rest of your life......
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