I have an auto loan that charges 6.3% interest. The balance of the auto loan is $19,300.00.
I recently came across some money, $4600. Should I invest this money in an index fund or use it to reduce my auto loan balance?
Thank you for your time and consideration.
Sincerely,
Jimi
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thebrofessor may disagree with me, but I'd vote to pay down the balance. Can you look at refinancing for a lower rate and new payment amount so you can then invest that delta amount and start saving that monthly and building a savings plan instead?
Damn that's a pretty bad interest rate. I'd pay down the loan if you can't refi. Markets are all over the place and unless you have some sort of winning strategy/financial advisor you'd be lucky to see that 6.3% this year.
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There’s actually a third option which could have the highest pay off which is keep the cash liquid and pay off your loan plan as you would. Also, just for your knowledge base - Unless you had 19k and it was either pay off the loan for 6% or invest, it’s not an apples to apples comparison. It’s about the “life” of the loan and how much compounding that 6% interest will cost you over time. Now, assuming that’s fixed at 6 whatever %, you’re actually “making” money in these inflationary periods because the value of that original loan isn’t the same as it is today or what it will be tomorrow assuming inflation continues. The question really becomes, what is the directional value of the asset of the loan. In this case, the car. The asset is what appreciates in inflationary times. Generally though just looking at your situation and given your limited understanding of finance, hang tight and don’t throw that money around. You’re actually winning against the loan originator. Don’t double down and screw yourself by “buying an index” - just hangout for now
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