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Grappling with whether or not to pay off an auto loan that has a very low interest rate (1.75%). Balance is relatively small, around $11K, so the payments are modest at $275/mo. We have a good size emergency fund and are trying to build it up a bit more after having purchased a house this past year. Other finances are good, no other debts at all other than our mortgage (3.75%/30 year), we own our other vehicle outright. Will be receiving my annual bonus this year and it will be north of $20K. Would you pay off your auto loan to be done with it or would you put the money to work elsewhere since it's such a low interest rate?
Grappling with whether or not to pay off an auto loan that has a very low interest rate (1.75%). Balance is relatively small, around $11K, so the payments are modest at $275/mo. We have a good size emergency fund and are trying to build it up a bit more after having purchased a house this past year. Other finances are good, no other debts at all other than our mortgage (3.75%/30 year), we own our other vehicle outright. Will be receiving my annual bonus this year and it will be north of $20K. Would you pay off your auto loan to be done with it or would you put the money to work elsewhere since it's such a low interest rate?
You didn't mention anything about how you are doing on retirement....if you are at all behind schedule you should work on fixing that issue first. If you are doing well on retirement, then it isn't necessarily a bad idea to pay the car off, or to pay the mortgage down. The mortgage has a higher interest rate even post-tax, but you wouldn't see a cash flow benefit right away unless you recast, which requires you pay a fee. So paying down the car loan or the mortgage might make sense.
I'd go ahead and pay it off, then put the rest of your bonus into either your emergency fund or investments (or both). Then you can direct that extra $275/month straight into long-term investments.
Is your job stable and do you anticipate similar bonuses each year? I was in the same boat and elected to pay off my wife's car just to make the payment go away and free up monthly cash, but my job is pretty secure and an annual bonus is a part of it, so I can make up the larger outlay next year.
You didn't mention anything about how you are doing on retirement....if you are at all behind schedule you should work on fixing that issue first. If you are doing well on retirement, then it isn't necessarily a bad idea to pay the car off, or to pay the mortgage down. The mortgage has a higher interest rate even post-tax, but you wouldn't see a cash flow benefit right away unless you recast, which requires you pay a fee. So paying down the car loan or the mortgage might make sense.
Doing well on retirement. All in roughly $200K between two 401K plans and two separate pension plans. Currently contributing 10% of salary, will likely up that to 12% after the bonus.
The immediate $275+ per month cash flow injection is the biggest benefit so I probably would not pay down the mortgage this year with this auto loan, even though it is at a higher interest rate. We are paying the extra payment each year to help pay down the mortgage a bit quicker than 30 years.
Is your job stable and do you anticipate similar bonuses each year? I was in the same boat and elected to pay off my wife's car just to make the payment go away and free up monthly cash, but my job is pretty secure and an annual bonus is a part of it, so I can make up the larger outlay next year.
Yes, stable job and in year three this is my 3rd bonus (the bonuses here are very good/substantial). Although this year I am receiving the max bonus due to a "5" rating and promotion, which I likely won't get every single year.
If it's a one-time bonus, then I think it's better to save it, particularly on such a low-rate loan. However, if you can reasonably expect similar bonuses for the foreseeable future, then I think it makes sense to pay it off.
If it's a one-time bonus, then I think it's better to save it, particularly on such a low-rate loan. However, if you can reasonably expect similar bonuses for the foreseeable future, then I think it makes sense to pay it off.
I don't see the logic. I have no bonuses at all, does this mean I should go borrow money on my paid-for car and leave it sitting in the bank? It's basically the same thing!
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