Author Topic: Selling taxable vanguard shares to pay off car loan?  (Read 377 times)

Junco

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Selling taxable vanguard shares to pay off car loan?
« on: July 10, 2019, 09:35:51 AM »
Hi everyone,

My partner and I currently have 2 cars but I will be getting rid of mine since it is old, nearly worthless, and has issues, and we'll become a 1 car couple. Her car still has a $8000 car loan at 3.7% and no prepayment penalties. The car is valued at about $8000.

I have $8300 in Vanguard Taxable Account (VTSAX) and around $2000 in free cash. Monthly surplus of cash is around $500 which I invest in the taxable account. My total NW is $119,000.

I'll probably just pay $4000 and she'll pay the remaining $4000 since our finances are kept separate. I've never sold shares out of the Taxable account before and don't exactly understand the implications of that. Does it make sense to send whatever cash I have plus sell off shares to pay the loan right away or just send whatever cash I have free now plus $500-1000 each month until the loan is paid off in a few months?

I assume VTSAX makes over 3.7% but know the earnings are taxed when withdrawn. I realize it probably doesn't make much of a difference either way but am curious to know the answer.  Thanks!


Frankies Girl

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Re: Selling taxable vanguard shares to pay off car loan?
« Reply #1 on: July 10, 2019, 09:42:58 AM »
Nope. I wouldn't.

It actually makes more sense to keep paying the minimum payment on the car loan and pay it off on schedule and use the extra $ to add more to your investments (retirement accts 1st, follow the investment order), since the investments are outearning it easily. If you're down to one vehicle, your insurance/operating costs will be reduced too, so that money could be thrown at the loan as well but logically it's not the best use of the funds.

Using your investment account to pay off a loan like this, you'll pull out money earning waaaaaay more than 3.7%, so you can pay extra on top of htat for the cap gains (all reportable on your taxes). You have a large chunk of ready cash, make a nice surplus, and you likely could just both hit that debt harder over the next few months and knock it out pretty fast without touching investments...




RWD

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Re: Selling taxable vanguard shares to pay off car loan?
« Reply #2 on: July 10, 2019, 09:56:08 AM »
Keep the money invested.
Investment Order

six-car-habit

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Re: Selling taxable vanguard shares to pay off car loan?
« Reply #3 on: July 10, 2019, 12:01:17 PM »
 No , don't do it.

if the car-loan is an emotional issue for you , then find and put extra money toward it each month. Sometimes this is better than keeping a nagging problem [ car-loan keeping you awake at night] in order to be putting the money into more investments.

Junco

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Re: Selling taxable vanguard shares to pay off car loan?
« Reply #4 on: July 10, 2019, 12:28:12 PM »
Thanks for the advice everyone. I have always been very anti-debt and haven't carried any debt balances since I paid off my student loans 5 years ago. Didn't ever plan to go into any more debt, but "marrying" into the car loan seems like the best option to address my transportation needs right now.

So to summarize your responses (if I understand correctly), the best financial option would be just pay the minimum payments because the 3.7% interest is low, and keep investing any extra cash into a taxable account (my 401k and IRA are already maxed). If being debt free would be emotionally beneficial, don't un-invest but send extra cash towards the loan until its paid down quicker.