Author Topic: Expected tax refund: Pay down car loan or invest?  (Read 219 times)

Dogastrophe

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Expected tax refund: Pay down car loan or invest?
« on: November 07, 2018, 10:23:26 AM »
Hi all,

I have a small inheritance (~$35K) coming my way plus have close to $18K available cash by end of Feb 2019 from savings.  We are planning to put all this into our RRSPs ($36 into mine, $18 into hers).  We have a shit-ton of contribution room in our RRSP so no risk of over contributing.  Based on our current incomes / tax brackets and monthly rrsp contributions, I expect to see combined tax refund of ~$22K.

Initial thought was to take the tax refund and flip it into TFSA which we would use to build up our emergency fund plus use for a trip we have planned next year.

We have a car loan on the books that we could wipe out when the refund hits bank.  Loan is currently around $24250+/- at 2.49% (cash flow drain of $110 per week).  Unless we decide to downsize the buggy, it's likely we'll still be driving this 8 or 9 years from now (we tend to run them into the ground).

We have no other consumer debt but the car loan.

Thoughts? Opinions? Advice?



nereo

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Re: Expected tax refund: Pay down car loan or invest?
« Reply #1 on: November 07, 2018, 10:38:26 AM »
The investment order is the go-to standard for this kind of question (link)

tl;dr - I would invest in your tax advantaged accounts (in this case your TFSA) rather than pay down an auto-loan at 2.49%

Dogastrophe

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Re: Expected tax refund: Pay down car loan or invest?
« Reply #2 on: November 08, 2018, 07:14:38 AM »
Thanks.  That was my plan but then started to second guess things.  This having excess cash available for things other than continued debt repayment is a new thing for us.  :)