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  • Pay off auto loan or not?

    We currently have $10,100 remaining on an auto loan of $13,[email protected]% originating on 2/2/2020. Our only other debt is our home mortgage($145k left on a 233k 30 yr [email protected]%). Our home is currently worth around 350k and we plan to move in 7 yrs. Our online savings is at 0.6% interest and was curious if it'd be wise to take from that emergency account(45k) to pay off the auto loan or not.

  • #2
    yes as you are earning less on that money than you are paying for a depreciating asset....

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    • #3
      Maybe if that were the only two choices, but you can do other things with the money.

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      • #4
        Originally posted by Peds View Post
        yes as you are earning less on that money than you are paying for a depreciating asset....
        That's kind of what I was getting at. Thanks.

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        • #5
          Originally posted by Zaphod View Post
          Maybe if that were the only two choices, but you can do other things with the money.
          Such as what(allowing for quick liquidity and low risk)?

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          • #6
            behavioral finance answer: pay it off, don't borrow money for things w/ engines

            logical answer: you didn't give a bunch of details, but i'm going to guess it really doesn't matter to your overall financial picture

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            • #7
              Yes. A high earning professional shouldn't have an auto loan.

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              • #8
                Why would you have a car loan if you don’t have to? My wife and I financed a car 2 months ago, but it was entirely a function of cash flow (had a third child, two years out from training and just depleted cash for home down payment - thought we could fit 3 car seats in previous car, we were wrong). We put 20k down and are paying 5k/mo on the remaining 20k. Just pay it off, it’s cleaner that way.

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                • #9
                  For those advocating paying off the auto loan, why pay that off instead of putting extra towards the mortgage at a higher interest rate then?

                  Im a believer that all debt isn’t bad, if utilized correctly. It shouldn’t fund lifestyle inflation but can help investing goals.

                  Personally I would try and refinance your mortgage and pay minimums while investing the difference or the rest. As long as you have a long investment horizon and can stick with it, odds are you’ll beat paying off loans.

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                  • #10
                    Depending on your situation this auto loan is in ankle biter territory. Just stomp it.

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                    • #11
                      Ok, ok, ok (think Joe Pesci in Lethal Weapon II). You stated that the $45k already has a purpose. It’s your EMERGENCY FUND. Don’t undercut your money that has been laid out for downside risk protection.

                      If you are talking about what to do with a marginal investment of cash flow that’s a different question entirely. I agree with Nysoz - see if refinancing makes sense. Then look at your asset allocation otherwise and see if the marginal investment there has better returns. If so, and you’re financially comfortable with the fixed expenses being produced by the car loan, then don’t pay down the loan. Ditto for the home loan.

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                      • #12
                        Originally posted by Nysoz View Post
                        For those advocating paying off the auto loan, why pay that off instead of putting extra towards the mortgage at a higher interest rate then?

                        Im a believer that all debt isn’t bad, if utilized correctly. It shouldn’t fund lifestyle inflation but can help investing goals.

                        Personally I would try and refinance your mortgage and pay minimums while investing the difference or the rest. As long as you have a long investment horizon and can stick with it, odds are you’ll beat paying off loans.
                        It's all psychological. Nobody who is advocating on paying off the loan is going to argue that it's the best financial move because it isn't. It's the better psychological move, though. You say all debt isn't bad, however an auto loan is never good. I'm a firm believer that no established physician should have an auto loan.

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                        • #13
                          I would vote no to using a large percentage of your emergency fund to pay off this small loan. If you had a cash reserve that was needing to go to investing or paying off debt, then do it. I would just pick an extra amount ($2000?) to send each month and this loan will be gone shortly.

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                          • #14
                            $10k is a small amount. I would just pay it off. Paying off the mortgage would be the better financial choice but I would rather get rid of the loan.

                            On a $145k mortgage balance at 4% it may not be worth refinancing depending on the refi cost. You could prepay the loan balance down instead. With the standard deduction $24k for married couples most Americans are not getting any Federal deduction on their mortgage.

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                            • #15
                              Originally posted by CordMcNally View Post

                              It's all psychological. Nobody who is advocating on paying off the loan is going to argue that it's the best financial move because it isn't. It's the better psychological move, though. You say all debt isn't bad, however an auto loan is never good. I'm a firm believer that no established physician should have an auto loan.
                              You can get 0% auto loans. On depreciating assets, even used you can get near 0%. This is actually great since you're never paying for the depreciation up front nor sunk a bunch of money into something before its actually provided any value. It gets stolen, wrecked, etc...or you change, no big loss.

                              Whether or not something is good is solely based on price, if its free to negative, I'll take it if there is something else to do with my money, if its high enough to matter, other options.

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