Should I pay off my car?

I’ve got a several year old car with a loan at 3.74%, principal balance is $18,852.18, monthly payment is $540.87. Finance charges in 2021 were $766.08. Kelly says the car is worth $36,547.

In normal times I’d figure my investments would return > 3.74% so just keep paying the car loan, but the market has been flat for the last 6 months. I have the cash to just pay off the car. Should I do that or keep shoveling the money into my Schwab/Vanguard/etc?

I would recommend finding a solid stock that pays a 4%+ dividend that is down for the year. I think that is a better use of the money.

Long term the stock should be better than paying off the loan and it is likely to increase in value also. Though maybe not this year.


Alternately, investing in Index funds is a good bet as long as you won’t need to cash out within 2-3 year. I like SPY {SPDR S&P 500 ETF TRUST} and have NASDAQ fund also.


It is a very good time to do some research and invest in alt-energy companies. But this can be tricky finding the ones with a good diversified plan and solid funding.


Everything is also age dependent. If you’re over 60, just pay off the car. If you’re under 40, take some risks, like at least a REIT.

Reasonable minds may differ on this. For me, the peace of mind I get from eliminating a debt is worth more than the marginal benefit I might get from investing.

To paraphrase that guy on the radio, would you take out a car loan to invest money in the market?

That said, I got a zero percent offer when I bought my car and am therefore slowly paying it off over time.

Why is that? Guess what – I’m 60 next Tuesday!

Yeah, that’s kind of how I’m feeling about it, but I don’t want to do something foolish just for that peace of mind.

I’m already in a pretty diverse portfolio, Stocks, bonds, munis, indexes, yada, all balanced by my CFP.

Obviously I can always just put $ in whatever investment vehicle I like inside my brokerage.

Have you gotten a pay out figure? You may want to do a calculation of how much is actually owing if you pay out early. Some loans are structured in such a way, the payout isn’t much less than letting it run to full term. I got a bit of the shaft on that repaying a car loan early about 35ish years ago.

(that must be quite the car if it’s several years old and still has a retail north of 36 G’s.)

Just a rule of thumb. By 60 (and assuming you plan to retire somewhere between 63 and 67) you should start going conservative in investments. So paying off the car loan is a pretty good conservative move unless you can find a bond that pays better. Many experts say you should go conservative at 55. I think it should still be a mix though.

I hate having debt too. We only have a small mortgage. No car loans at all.

FTR, I’m retired and under 60. I’m beginning to move stuff into more conservative investments. I love blue chips with good dividends and reinvestment.

Audi S3 with 30k miles. I work from home and don’t drive much. Also the price of used cars is insane right now thanks to issues with manufacturers and the supply chain. If I could sell this and make $18k profit I would, but then I’d need a different totally-overpriced used car so why bother?

Good point. I’ll call the credit union and ask. There doesn’t seem to be a place to do this on their web site, which is pretty sparse.

Wow, I just checked my car thanks to this post. It is only worth about $1000 less than I paid for it in 2018. Also low mileage and in excellent shape. Used car prices are insane currently.

My daughter’s friend recently sold her 3 year old car back to the dealer for more than she paid for it new. Got a few grand more than she paid for it. (don’t know what she’s driving now and what one will have to pay when they do buy a new car is probably going to be scary)

I chatted with the credit union. Payoff amount is $18,395.77, so -$456.41 difference from my March statement, probably because I’ve already made my April payment and the statement hasn’t posted. Or something.

Is the car worth more than the payoff? I’m buying my lease vehicle this week because its worth $19500 according to the lease agreement that was made three years ago. If I had to go out and buy the exact same car I’d have to pay at $26000. So for me its a no brainer.

It’s worth about double the payoff value. But it would be worth that whether I had a loan on it or not, so I don’t follow your point.

Pay it off and then sell it. Then use the extra money to buy a newer car and possibly be making the same payment on a newer car. Once the chip shortage is over the car will be worth a lot less because people will want newer cars.

Pay off the car and start adding the amount of the monthly payment money to your investment accounts monthly. You’re turning a fix cost into a variable cost, you don’t have to make the monthly investment if you have something better to do with the money.

If you want to sell the car to make a profit now then just do that. You’ll have to pay it off to complete the sale anyway.

Wouldn’t I need to find a 4%+ investment that’s tax free (munis) or ~6.5% taxable since I’m in the 35% tax bracket to make investing the $18k more profitable than paying off the car loan?

I talked to my Schwab CFP and he’s all, “nah, just pay it off. You don’t need the headache”, since I already had the cash earning effectively 0% in my Wells Fargo when it could earn 3.74% paying off the car.

Bam: paid. Boo ya. :raised_hands:

Damn that feels good. :partying_face:

A very solid choice. Congrats on full ownership.