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Debating whether to pay off my car loan or invest the cash instead
My buddy Mike told me his emergency fund making 4% in a HYSA was better than paying down his 3.9% car loan. But my dad swears by killing all debt first, said he paid off his truck in 2022 and never looked back. Which side makes more sense when the rates are this close?
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craig.parker4d ago
Your dad's got a point but only if the math backs it up. Paying off a 3.9% loan means you're guaranteed to save that 3.9% in interest, while a 4% HYSA is taxed so your real return is probably closer to 3% depending on your bracket. That tiny difference isn't worth locking up cash you might need for something urgent like a surprise medical bill or a new roof. Plus, having that car payment means you're already paying for the car every month, so you're not actually losing money on it. I'd take the extra yield and keep the liquidity, not stress about being debt free overnight.
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samreed4d ago
Paying off a 3.9% loan means you're guaranteed to save that 3.9% in interest" - come on, dude. It's a car loan. Not a second mortgage. You're acting like this is some life or death financial move.
Just throw extra cash at it if you want. Or don't. Either way it's like a $200 difference a year. Not exactly retirement-ruining stuff.
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charlieh744d ago
Man, I gotta push back a little on the HYSA point. That 4% yield isn't what you actually get after taxes. If you're in the 22% federal bracket plus state taxes, that 4% is more like 3% or even 2.8% after you file. So the difference between earning 3% and paying 3.9% is actually bigger than you're making it sound. That $200 a year turns into more like $400 or $500 on a $30k loan over a few years. Not life changing but it's not nothing either. I'd still lean toward keeping the cash handy just in case, but the math is a little tighter than you're giving it credit for.
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