Since the interest rate wasn't good (6.4%) my wife and I decided to pay off the car to save interest amount of ~$3500 over 5 yrs.

Our hope is that this car will hold it's value 5yrs from now for dealer trade-in when the next G coupe comes around.

 

Congrats!!
Thats a great choice. I plan on paying off my car early. Hopefully within the first year. I dont like having payments and I sure dont like paying extra in the form of interest.
Nice job!

 

That is certainly a smart decision is you have the means to do it. Congratulations. I plan to pay mine off early as well.

 

Personally, I don't think it was such a good decision. I think you should have paid of MY car instead.

/congrats

 

I sort of live by the rule of "Don't give the bank anything they don't have coming to them. Invest it."

Example - I got 3.50% on my loan - and the money that I DON'T pay the car off early with and give to the bank is earning a guaranteed 5% a year through my ETrade Savings account.
Other parts of that money are in Mutual Funds as well, which have been giving me 12-14% per year for the last 6 years.....and seem to be on track to do so this year.

So by not paying it off early - I'm making money.

But that's just one school of thought. There's a lot of security in just paying it off too! Congrats!

 

Yeah, it's kinda like "It takes money to make money" but it's even better when it's someone else's money!
But my HSBC online savings account went from 5.05 APYto 4.5.
And my mutual funds are closer to 7% over the last few years.

 

I'm going the same route. But I'm paying it all at once

 

Same here. probably pay it off within a couple of months.

 

5% is low and quite standard at all banks. A CD will yield you the same result unless you can get the preferred rates (6% or higher). But even that's low.

3.50% on a loan is pretty good, but remember, it's not really 3.5% as it's compounding.

12 to 14% isn't too bad, but you can get raped by taxes once you get your mutual fund out and use it as income. And I bet the bank makes way more than that 14%..probably like 100% or more depending on what they're doing.

You're better off to pay more up front for your car to reduce the cost of a loan.

 

I don't want to get into a thread hijack about investing - but capital gains is only 15%. That means if you hold on to your mutual fund/stock/etc for 1 year or more (which I do), then you only get taxed 15% on the GAIN. That means if i make $100 profit, I keep $85 of it. The original money I invested years ago will never get taxed again. I have a pretty conservative portfolio as well, and enough of it is in guaranteed investments (CD's, Govt. Bonds) that the equation will work for me even in a down market year.

So let's say very conservatively I only make 6% average for the next 5 years on my mutual funds, CD's, Bonds, etc, etc..... That's ALSO compounding, and even after taxes is still way more than the 3.5% I lose by not paying the car off immediately. (It's actually about 5.25% gain after taxes). 5.25% > 3.5%.

So - in the end, If I even make $.01 more than if you had paid the car off early, then it's worth it, of course.

But - I understand there's DEFINATELY a secure feeling you get knowing your car is paid off. And if you're not investing that payment ahead of time, then of course you'd want to pay it off early.
This is what I'm doing for me because it makes financial sense. It may not for everyone....especially those with higher loan rates.

 

Thanks for the clarification. I got this mixed up with 401k's and RRSP's (Canada).

 

I wouldn't have done that but what do I know, I only do investment banking on the side Oh well, it's nice to not make payments!

 

No matter how I look at it buying the car = throwing money out the window. It's terrible investment that depreciates and in addition to that car is prone to damages. Little bump or scratch on metal and it needs to be repainted, right at that moment you're loosing big $$$. Wise would be to get a beater or cheap sedan for 10-12 K and drive it till it dies, anything above should be leased.
If you haven't figure it out do the math.
My 2c

 

^^ Agreed, 5-year loss on the car itself is worse than 50% and that's for a high resale valued car like the G, imagine if it was an american car that stickered new for 40G.

 

With the lease I was quoted it would have cost me $12k a year to drive a loaded G37. From my math it still looks like you lease if you want to drive more car than you can afford. They try to sell you on being able to walk away at the end of the lease but usually the residual is so low you could sell it in a day.

Just quick, the KBB trade in on a 2003 G35 is about half of the price new. The same should hold true for the G37 so you could drive a loaded one for under $5k a year (prolly $6k with interest). Or you could drive a beater that would cost you something like $2K or $3k a year.