Pay down 1% loan or not?

[Gin1984]

I am a graduate student with a young child and my husband is a post-doc.  We had lived so one car until he graduated and got a post-doc position in the closest nearby university (an hour away) and then I bought my aunt's car from her.  When my mom found out I was doing so, she offered to loan me the money at 1% over five years and I accepted because I wanted to pre-pay my student loans that are on deferment but in three years will have a 5.75 interest rate.  Now, I am rethinking it.  Would it be better to not take the loan, and not pay the SLs off until after I graduate? 

[Bob W]

It appears your mom is essentially giving you a gift.   If you had to borrow the money for a car, that means to me you have very little money saved. 

The priority should be to continue to live as graduate students and save like hell to pay off your debts.  The 1% vs the 5.5% will be of little consequence over the long term, since your goal will be to pay them all off as soon as possible.

Given the options I would pay off mom asap.  Being in debt to family is miserable.   Be sure to have a little cushion saved and then save a lump sum up (while paying her monthly) to pay the entire amount.

You didn't say how much the car was?

[MotoMM]

I agree with Bob.  Wouldn't feel right being in debt to family, and also probably doesn't make sense to own a car that takes 5 years to pay off.

[Gin1984]

The car was worth about $5000-6000 but I gave my aunt $7000.  My aunt lost her eyesight and now can't drive.  She had the car but was not selling it so when we needed the car, I offered her money.  She won't take help from either my mother or I so this was a way to help her and also get something I needed.  When my mom found out, that was when she offered.  She tried to offer me zero because I was helping my aunt but I convinced her to go with what the high yield savings were giving.  But then, after convincing her to move her money in capital one (when they had an extra deal), .75 still seemed low, so I got her to take 1% after pulling the, but the loan would be 5.75%, you are saving me money.  However, my mother is not dumb, she sees the 2-3% ads for private loans, if I tried to go higher, it would not work. She wants me to succeed and do what works best for me, so if I am wrong on paying the 1% loan over five years and saving for the debt I still have, I want to know.  She won't care.   

[Catbert]

I don't necessarily think you are "wrong" to pay off SLs first; however, it isn't what I would do.  Your explanation just means that the situation is more complicated that originally thought.  Money, complicated and family isn't a good mix IMHO.  I would vote with Bob and Moto to save up the money needed to pay-off the car loan and pay off in a lump sum.

 

[thedayisbrave]

Honestly, you will probably get a lot of varying opinions on this matter but in the end its up to you, your family, and the dynamics of your relationship.  My mom has always helped me with money, not because I don't have it but because it's mostly tied up in investments.  I don't ask her for money but she offers so much that if it fits the situation, I take it.  We are also business partners and I think it helps that our relationship is structured more that way (growing up our relationship was always "business like" - it is what it is).  So, I have a loan from my mom and it works out just fine for us.  But I refrain from posting much detail about it here because it seems like a lot of Mustachians don't like to mix family with money.  Growing up my family was always very transparent about money so that's just what we do.  But it varies from person to person and family to family.

In your situation it doesn't sound like you are taking advantage of your mom - you are matching what she would get if the money were in the bank.  I wouldn't sweat it too much.  Personally I'd work on paying down the student loans and then worry about the loan from your mom later.  But that's just me - take it with a grain of salt.