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.
If your friend can find an investment that nets > 6.9% then they should go w/ that but I’ve found it’s usually more cost-effective to pay down a loan. They can also refinance later if a lower pmt and/or % rate is desired
I tend to buy cars with zero $$ down and instead throw extra money at the loan once it’s funded. I still keep the higher loan pmt to pay off the loan quicker. Having a large loan with a decent portion paid off boosts my credit score and helps me get higher loans in the future (I’ve been turned down for large loans in the past even w/ high income and good credit).