I-bonds https://www.treasurydirect.gov

I would not pay the loan off and would instead buy the I-bonds.

They’re close to holding cash. If you cash them out in the first 5 years you lose 3 months interest, so you have access to that money should you need it.

I'm in the camp of keeping the 2.9 APR car note and doing something productive with the money. Dollar cost averaging into an index fund would be my pick.

The car is a depreciating asset. The loan is cheap. I see no reason to put your cash in it now so that it'll cook off even faster than inflation.

Time IN the market, not TIMING the market should be the mantra. Most gains, over time, are the result of being IN the market on a few key days. I would dollar cost average while things have cooled off a bit--sure, it may continue to cool, but you also don't want your dollars on the sidelines when the market decides to recover.

quote:

Originally posted by r0gue:
How does one access these 10% ibonds? Banks, or do you get them through a brokerage? If the latter, does Vanguard have them?

You cannot buy them from a bank or brokerage. Only directly from the US Treasury at www.TreasuryDirect.gov

(Technically, there's one other route, getting them from the US Treasury via the IRS as part of your federal tax refund payment, but I assume you want in on it now and not next tax season...)

I'd pay the car off and be done with it, nothing better than being debt free and not owing the bank money every month

quote:

Originally posted by calugo:
I'd pay the car off and be done with it, nothing better than being debt free and not owing the bank money every month

I just did this last week, I had a very cheap note, under 2% and paid the last $6k off because I was sick of looking at it. It also made me debt free, two vehicles, condo, student loans....done.

I'll take that allocation of car payment and do something productive with it but considering the state of the economy and stock market, I wanted my belt to be as tight as I could make it.

If you are following the DR plan, I would suggest doing that. Pay off the car immediately. If you are following your plan, keep doing what you are doing. It sounds like you have excess on top of a 6 month emergency fund, so I don't understand why you rather keep a liability and paying interest unnecessarily.

quote:

I would not pay the loan off and would instead buy the I-bonds.

this

My opinion is pay it off for both math and psychology reasons.

One must make assumptions and guesses when doing the math. My assumption is the stock market is going to be down and then flat for a long time. Years. There will be little ups and downs, but unless you are a very lucky short-term trader, you are playing a longer game in the market.

I don't see buying into stocks as being profitable over the next 1-3 years. I'd give that about an 80% probability. If you put excess cash into stocks you aren't likely to make any positive return any time soon. If you keep the debt you are sure to lose 2.9%.

(For the young person with a long time horizon, I would certainly be doing 401k matching contributions and it is still smart to do something like 10-15% from the paycheck for dollar cost averaging).

But in your case I think since you already have excess cash you should pay it off and take the automatic 2.9% return. You can then start banking more savings into relatively safe places (e.g. I-Bonds, TIPS) until the market looks to be bottoming. Then start getting into various diversified funds or whatever looks right to you.

Dave Ramsey is about human nature not just pure math, and imho he is right. But in your case the math probably favors paying it off since you likely aren't going to be making money on investments.

You have $14,000 to pay off a loan costing you 2.9% interest or to put someplace else. I'll assume the 2.9% APR is real in that it wasn't front loaded as somebody else pointed out.

You should forego paying off the loan only if you can put the money into another vehicle that will earn you more than 2.9% interest net of any income taxes and adjusted for risk. How confident are you in achieving that versus the sure thing of saving 2.9% interest every year?

Auto loans are amortized. Just like a mortgage, the interest owed is front-loaded in the early payments.

quote:

Originally posted by Rey HRH:
You have $14,000 to pay off a loan costing you 2.9% interest or to put someplace else. I'll assume the 2.9% APR is real in that it wasn't front loaded as somebody else pointed out.

You should forego paying off the loan only if you can put the money into another vehicle that will earn you more than 2.9% interest net of any income taxes and adjusted for risk. How confident are you in achieving that versus the sure thing of saving 2.9% interest every year?

I am in the same boat with you.


Also, with inflation raging at 20% I would much rather pay it off in future dollars than in valuable present dollars. I mean this is why governments have currencies and create inflation in the first place. Pay off debts with less value money in the future.

Ymmv

quote:

Originally posted by SIGnified:


Also, with inflation raging at 20% I would much rather pay it off in future dollars than in valuable present dollars. I mean this is why governments have currencies and create inflation in the first place. Pay off debts with less value money in the future.

Ymmv

This right here. The interest rate on your loan is at least ONE HALF of the current stated inflation rate.

The only reason I would pay off a low rate car loan is if I wanted to drop the collision insurance policy. Which I did many times in the past, when cars were not so expensive. Now my vehicles are still worth almost what I paid for them, the collision insurance is relatively cheap.

I love cash. If you have it you can often buy things at very favorable prices. Things like stocks, bonds and real estate. We are in very, very odd financial times, and cash may be quite a handy thing to have around. Once you pay the loan off, the cash is gone forever. Maybe you should hold the cash.

There is no clear objective answer. It depends on your personal risk tolerance.

quote:

Originally posted by SIGnified:

quote:

Originally posted by Rey HRH:
You have $14,000 to pay off a loan costing you 2.9% interest or to put someplace else. I'll assume the 2.9% APR is real in that it wasn't front loaded as somebody else pointed out.

You should forego paying off the loan only if you can put the money into another vehicle that will earn you more than 2.9% interest net of any income taxes and adjusted for risk. How confident are you in achieving that versus the sure thing of saving 2.9% interest every year?

I am in the same boat with you.


Also, with inflation raging at 20% I would much rather pay it off in future dollars than in valuable present dollars. I mean this is why governments have currencies and create inflation in the first place. Pay off debts with less value money in the future.

Ymmv

I considered the effect of inflation when I thought about my answer but decided to leave it out for simplicity.

If the choice was between paying off the debt or just holding on to the money, the analysis becomes a bit more complex as the $14k is losing value due to inflation. I guess the optimal answer is don't just let the money sit there, do something with it. And I can totally relate because I'm 95% in cash since last week of April / first week of May.

Inflation can operate in the other direction, too. While future dollars are less valuable, unless your income goes up more than inflation, you have a harder time paying off the debt later.

Stocking up now on things you would definitely buy later is a good investment when inflation is high.