Author Topic: Should my friend pay her car off  (Read 3211 times)

SofiaBourbon

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Should my friend pay her car off
« on: July 11, 2015, 03:01:41 PM »
My friend asked me if she should pay her car off. I said,yes. But still wanted to ask the forum.

Her loan $7200
Interest 4.79%

If she was to invest it at a 7% growth - she would make some money but still would have the car bill. Thoughts?

Thank you!

La Bibliotecaria Feroz

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Re: Should my friend pay her car off
« Reply #1 on: July 11, 2015, 03:07:25 PM »
OR she could invest it and lose it! 4.79 is a great rate for a guaranteed return.

Without knowing further details, if it was my money, I would first make sure (if this applies) that I was contributing enough to get any employer match on retirement and that I had a few grand in the bank, then pay off the debt as quickly as possible. Then I would roll over that monthly payment into my next savings or debt payoff goal.

nereo

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Re: Should my friend pay her car off
« Reply #2 on: July 11, 2015, 03:20:26 PM »
for me, 4.79% is in that murky "middle ground" where you could either pay off the loan quickly or invest the difference. 
My only concern is when people don't pay off a loan early with every intention of investing the difference, but wind up just spending the difference.
Quote
OR she could invest it and lose it! 4.79 is a great rate for a guaranteed return.
As long as she's investing in broad index funds the likelihood that she will "lose it" is practically nil.  And if that happens, we're all screwed.

La Bibliotecaria Feroz

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Re: Should my friend pay her car off
« Reply #3 on: July 11, 2015, 03:24:33 PM »
for me, 4.79% is in that murky "middle ground" where you could either pay off the loan quickly or invest the difference. 
My only concern is when people don't pay off a loan early with every intention of investing the difference, but wind up just spending the difference.
Quote
OR she could invest it and lose it! 4.79 is a great rate for a guaranteed return.
As long as she's investing in broad index funds the likelihood that she will "lose it" is practically nil.  And if that happens, we're all screwed.

I didn't mean lose it all. Just it could go down during the time frame when she was instead paying off her line.

forummm

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Re: Should my friend pay her car off
« Reply #4 on: July 11, 2015, 03:28:26 PM »
7% returns are unlikely with these high valuations. And you'd have to pay taxes on those returns. 4.79% is high. Pay it off. Plus, then she can cancel her comp/coll coverage (if she can self-insure) or just raise the deductible if that saves some money on insurance.

SofiaBourbon

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Re: Should my friend pay her car off
« Reply #5 on: July 11, 2015, 04:56:55 PM »
Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15


use2betrix

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Re: Should my friend pay her car off
« Reply #6 on: July 11, 2015, 05:48:49 PM »
Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15

I'd pay those off before the car. Higher interest rate and also financed over a longer period most likely.

nereo

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Re: Should my friend pay her car off
« Reply #7 on: July 11, 2015, 06:48:32 PM »
Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15

I'd pay those off before the car. Higher interest rate and also financed over a longer period most likely.
Yup - changes the equation.  She should tackle each of the two loans at 6.55% (sequentially).  Could be wrong* but given her student loans and her car loans I'm getting impression that she's been spending more money than she's been earning.  advice:  Kill the two 6.55% student loans followed by the 5.3% and then the car loan (if there's anything left by that time).  Stop buying things on credit until her debt is under control.

*there's an outside chance he/she is also a saver, in which case it becomes a bit more nuanced.

forummm

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Re: Should my friend pay her car off
« Reply #8 on: July 11, 2015, 07:09:59 PM »
Yeah, pay off the highest interest rate loan first, and then go to the next one, and the next one, etc.

Rubic

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Re: Should my friend pay her car off
« Reply #9 on: July 11, 2015, 07:24:08 PM »
You should point out to your friend that her hair is on fire.

Dicey

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Re: Should my friend pay her car off
« Reply #10 on: July 11, 2015, 09:34:53 PM »
Also, she might consider a So-Fi re-fi/consolidation of her student loans. Get the rate down first and then decide what to pay off.

lostamonkey

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Re: Should my friend pay her car off
« Reply #11 on: July 11, 2015, 09:52:05 PM »
Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15


She should pay off the 6.55% loans first. The invest vs pay off debt thing does not really apply to her because she will likely spend her surplus cash instead on investing.