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JoExoticTigerKing OP t1_ixwo7ri wrote

Reply to comment by Qbr12 in Parents left be about $33K in cash after they passed. How should I invest this? by JoExoticTigerKing

This is what my friend was saying. The interest rate is so low that it's not worth paying it off all at once. I pay an extra $100 just to pay it off faster

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Qbr12 t1_ixx9bhg wrote

Not even that, you're actively losing money if you pay off your car loan early. Each $100 you pay off your car loan saves you $2.50 in interest each year. But that same $100 could earn you $4.50 in interest via 12 month government bonds.

For every $100 you pay off on your car loan you are giving away a free $2 each year.

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Left-Landscape-3890 t1_ixwua5e wrote

While that's true, don't sleep on cashflow. You're out 500 a month with that car payment. That's nearly enough to max a roth ira. An option could be max this year and next roth ira and pay down the car with the rest.

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whisky_in_your_water t1_iy0aqnw wrote

Or you could just max the IRA every year for the life of the loan ($33k is enough for ~5 years). Just stick it in t-bills for now and invest $6k of it or whatever in an IRA each year.

Cash flow is nice, but it's worse than getting a better return.

The main exception is if OP would switch to cheaper insurance without the loan, which would probably be better value than the higher returns in t-bills.

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