I currently have a car loan with a balance of 52k BRL and still 40 monthly payments left.
On the other hand, I have 270k BRL invested in different financial products.
Would it be smart to take 52k out of my investments to completely pay off the car loan?
I’m trying to figure out if it’s better to keep the liquidity or get rid of the debt altogether for better long-term financial health.
Check out this link: Paying down loans versus investing - Bogleheads
It’s all about comparing the interest rate on your loan to what you’re earning on your investments. Most of the time, paying off debt is the right move, but there are rare situations where your loan rate is lower than what you’re getting from your investments.
Great answer! Interest rate is key here in my opinion.
Don’t forget taxes on the investment returns when comparing.
Exactly. The numbers need to account for taxes in both scenarios. The link explains it well.
Totally agree. Compare those rates. Usually paying debt wins, but not always.
What if the loan is 0% but the payments are so high that after taxes and bills, there’s barely anything left? Should I pay it off for breathing room or keep it going? It’s not like I have much leftover to invest anyway, but I can afford to pay it off. Just hate seeing my balance drop.
Keep your emergency savings and keep making the loan payments.
Personal finance is personal. Do what feels right for you. The numbers say 0% loan is a good deal, but there’s more to consider than just the math.
Make sure to look at the interest rates before deciding.
It’s wild to ask for financial advice without mentioning the interest rate. It’s like a rule of the internet: ask for serious advice but leave out key info lol.
We need to know your average (or expected) return on investments and the interest rate on your loan. Put your money where the higher rate is.
Trade it for an older car. Every place I’ve worked, the people with big portfolios drive old cars. The ones deep in debt are always the ones with the new car payments. When someone talks about a beat-up car, I just say, “That’s what millionaires drive.”
Exactly! I retired at 49 because I drove old cars and invested aggressively.
You beat me to it! I’m aiming for retirement at 52, just 16 years to go.
What’s the interest rate on your loan?
Instead of selling investments, maybe reduce how much you’re currently investing to pay off the loan faster. That way you won’t have to sell and pay taxes.
I’ve always paid cash for my cars. Bought a new one last year, but didn’t want to sell stocks to cover it, so I got my first loan. 2% for 3 years. The $2600 monthly payment stings, so I ask myself this question every now and then. So far, I’ve stuck with the loan because I make more than 2% in the market.
It’s all about the interest rate. Nobody can say definitively what’s best. And it’s not as simple as “higher loan interest means payoff,” because you’d miss out on compounding investment returns. With the market doing well, I’d keep making payments and wait to see how things compare once you amortize the interest.
What’s the interest rate on the loan? If it’s over 10.5%, then definitely pay it off.