quote:
It's a point and a half. Yes, the mortgage is over a longer term, but the car is better for cash flow AND net effect, particularly as the mortgage interest is tax deductible - that's got to be worth a point or so.

I conceded that the 1.5% was prob dick over the term that is left on his car note and that for peace of mind and not having another bill, it may be worth paying off the car.

My main point was back to you saying that paying off a depreciating asset somehow saves money in this instance. The fact that it is depreciating doesn't have anything to do with what he ultimately ends up with.

The car is going to be worth the same $$$ amount whether it is paid off or you owe on it. You will still have the same principal in the end and if you are just shifting the asset to where you are paying the interest, it is a wash.

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Posted by LSUFanHouston

NOLA

Member since Jul 2009

37846 posts

Posted on 5/16/14 at 1:02 pm to Lsut81

To the OP, just to confirm... you don't have any other debt? No credit cards, installment loand, student loans, etc? Just the car and the house?

Also, to the OP... you said retirement is being otherwise funded... but what about a good ole 3 - 6 months emergency fund?

If one is going to have the belief that you should not have debt on a depreciating asset... that belief should still hold even if you took out the debt and are now considering paying off that debt in a lump sum. That's probably a strategic/tactical move more than a purely financial one. But... if you are of that mindset to not have debt on a depreciating asset... the fact that the debt already exists should not change that mindset.

If it was me, and if I had no other debt and a 3-6 months filled up emergency fund... I'd pay off the car loan and bank the balance. Whether you put it in a CD, your savings account, a low-risk investment, or play the market, depends on your tolerance risk level.

Also, someone commented that paying the debt monthly helps your credit. I don't agree. Your credit score is going to look better with a paid off installment note than it would owing money on an installment note. The fact that you had the debt and serviced it properly by paying it off will look fine to the score machine. And, by paying it off, you've lowered your debt ratio.

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Posted by Ace Midnight

Between sanity and madness

Member since Dec 2006

90877 posts

Posted on 5/16/14 at 1:14 pm to Lsut81

quote:
The fact that it is depreciating doesn't have anything to do with what he ultimately ends up with.

From a purely mathematical perspective, perhaps not. Overall, it remains the best play here - despite the mortgage at a slightly higher APR - pay the car. Even over investing in a mutual fund (again, with a slightly higher APR) - pay the car.

Depreciating assets should be debt free as soon as possible - for a whole host of good reasons.

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