Hello, Friend got a new truck. Price of truck OTD = $45k Down payment at time of finance = $2k ($43k financed) Interest = 6.9% Total for 75 months = $55.5k roughly which means it’s about $10k of ONLY interest. Payment = $710/month
Correct me if I’m wrong but in theory this truck can be paid off tomorrow and my friend pays none of the $10k interest, right? Anyway, my friend has a check that he wants to use of about $23k. My question is: is it better to put the $23k towards the auto loan right now (ensuring that the money goes towards the principal) or is there a better alternative like placing the money in a HYSA and earn about a 5% interest (I know it can fluctuate) and use that account to pay off the debt gradually? He’d be paying a lot more than the minimum monthly as well. I guess the only upside to this is though is having more cash liquid if ever needed.
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A friend…👍🏻😁
Should I make a one-time 23k payment…
…Friend got a new truck…
Are you asking for yourself or for a friend?
If your friend can find an investment that nets > 6.9% then they should go w/ that but I’ve found it’s usually more cost-effective to pay down a loan. They can also refinance later if a lower pmt and/or % rate is desired
I tend to buy cars with zero $$ down and instead throw extra money at the loan once it’s funded. I still keep the higher loan pmt to pay off the loan quicker. Having a large loan with a decent portion paid off boosts my credit score and helps me get higher loans in the future (I’ve been turned down for large loans in the past even w/ high income and good credit).
if he has any CC debt, pay that off first, its almost certainly at a higher interest rate than the car loan. then if his car loan is the highest remaining interest rate of all his debts dump the remainder of his cash into that.
No.
If it was me, I would pay off the car loan.
The simple answer is probably no. If your “friend” can’t pay off the loans principal+accrued interest then just paying on the loan is best. A HYSA won’t yield enough interest to save any money. In fact your “friend” would pay more in interest this way.
One good option would be to take a large chunk(maybe 10-15k) and make a payment towards principal. You keep a rainy day fund and reduce the interest owed. Save more and request a payoff once enough money is available to clear the loan. While the benefits of payment history boosts the credit score.
Another good option, if money is no problem, dump the full 23k into principal. From there pay as much as possible on each payment to clear the loan ahead of time. If the loan doesn’t have a prepayment penalty refinancing doesn’t matter. If you payoff the loan early the lender returns any unearned interest. Refinancing costs money and with current rates still rising would probably be no help.
I know both sound the same but one is keeping savings and the other is dependent on having enough money coming in that a rainy day fund doesn’t matter.
Pay it off as fast as you can.
I see a lot of people concerned there is a pre-pay penalty (which I know exists, but personally never seen on an actual loan). That would be shady to me and again I know shadiness in the world grows every day.
Y 6l
Check the loan documents. Not every loan allows early pay-off.
Also lol, 2k down and 6.5 years to pay off a 40k vehicle. People are so fucking dumb.
Correct me if I’m wrong but isn’t a an auto loan a loan that retains interest payments on the original loan amount. I would head to a credit union or something and tell them his situation. He can probably get a lower % plus put that 23k towards the loan then. Meaning he’d finance 20k at that point meaning the interest paid on that loan would be based on 20k not 43k. Not gonna grill the guy because I did the same thing. Got a 39k truck finance 32k. Next month I sent 15k stupid idea but yeah. This was also on 1.9% interest.
" this truck can be paid off tomorrow and pays none of the 10K in interest " Then just pay it off and you can pay your self back every month of $710 or more.
Does your friend have several months of expenses in cash savings? Maybe save $12k and put $11k towards the loan.
Having cash on hand in case of emergencies or a job loss is a huge deal, most people should prioritize building a decent cash savings ahead of maximizing yields.
Yes. Anything you pay over the monthly payment will go to principal. If hes got the money and can spend it for something like this and doesn’t truly need it for anything else. Go for it.
He will take a bit for a bit on his credit score cuz he lost a line of credit paying it off. 10-15ish points probably/maybe. But it will Bounce back quick.
Or pay off 90+% in one go and have a small 1200$ ish left and make baby payments (the due dates will be very long cuz he payed ahead almost all of it) until that is gone if he wants/needs to bolster some credit history.