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re: Have some extra cash saved up thinking about paying off car
Posted on 5/16/14 at 11:50 am to foshizzle
Posted on 5/16/14 at 11:50 am to foshizzle
quote:
not because the car depreciates, but because it depreciates faster than the loan amortizes
This would, perhaps, have been a more artful, elegant way of stating my position - but I think insurance is irrelevant - the loss is the loss. You would want to reduce your potential for loss - regardless. Again, my point in the first place - if you're holding debt secured by a depreciating asset - it was dumb when you made the note, dumb when you pay the note and extra dumb if you take it all the way to maturity. I've done it - it was dumb when I did it.
And the decision to retire is very similar to the decisions to make the loan in the first place. "I wouldn't pay $X for this car today, so why am I holding a debt for that much, plus interest?"
I guess I see it as cutting losses - some of y'all don't see it that way. Agree to disagree.
This post was edited on 5/16/14 at 11:51 am
2
Posted on 5/16/14 at 12:10 pm to Ace Midnight
quote:
I guess I see it as cutting losses - some of y'all don't see it that way. Agree to disagree.
But you're not cutting any losses, you are just shifting it around. If he didn't have any other debt besides the car, then yes, paying it off makes sense. But he is talking about deciding which debt to pay down and the car is the lower % one.
Posted on 5/16/14 at 3:03 pm to Ace Midnight
quote:
I think insurance is irrelevant
If the asset is insured for the full value due on the note, then it doesn't matter. But that isn't the case for cars.
The fact that the loan was used to buy the car (the depreciating asset) isn't what's relevant here - what matters is that the note is secured by the car until it is paid off. This means that if you lose the car you have to pay the difference between what's left on the note minus the insurance check.
But look at a different example. Suppose I borrow against my home equity in order to finance the car (I am not saying this is a good idea). This timethe car is not secured by the loan at all and the HE loan should be considered completely independently of the asset it financed.
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