Hello, Friend got a new truck. Price of truck OTD = $45k Down payment at time of finance = $2k ($43k financed) Interest = 6.9% Total for 75 months = $55.5k roughly which means it’s about $10k of ONLY interest. Payment = $710/month
Correct me if I’m wrong but in theory this truck can be paid off tomorrow and my friend pays none of the $10k interest, right? Anyway, my friend has a check that he wants to use of about $23k. My question is: is it better to put the $23k towards the auto loan right now (ensuring that the money goes towards the principal) or is there a better alternative like placing the money in a HYSA and earn about a 5% interest (I know it can fluctuate) and use that account to pay off the debt gradually? He’d be paying a lot more than the minimum monthly as well. I guess the only upside to this is though is having more cash liquid if ever needed.
You shouldn’t be paying on a 6.9% loan to a lender when you can only get 4.5-5.5% if you keep the money in a safe investment. Use the cash to pay the loan off. If the interest rate on the loan was less than you could earn in an investment, then you should pay it off. (note: this assumes there’s no pre-payment penalty)
Your wording is confusing. I think what you’re saying is put the money into whatever has the highest interest.