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.
Only putting $2k down was a very bad idea. Your friend is immediately upside in his loan and at that interest rate would likely be for most, if not all, of the time in the loan.
If he chooses to keep this truck. First is $23k a lot of money to your friend? Does he have a large savings already? If not then I’d put at least another $8k towards the truck. That should hopefully help keep his head above water in the loan. I’d put the rest in the HYSA. If yes, than I’d put it all towards the truck. 6.9% is a high rate, paying that down gives you an instant rate of return on your money.