Yes. A guaranteed 7.5% return is solid, and you do not want a loan with that high of a rate on a depreciating asset.
Jon3141592653589 on
I sold the equivalent of 1400 shares of Apple to pay off a $2k credit card balance in Summer, 2005.
matt2621 on
I’d probably do this too. That’s a guaranteed 7.5% return. The market isn’t guaranteed.
rez0000 on
Probably, but also remember that gains from selling the stock are also taxed. Build that into your math so you don’t end up with a surprise come tax time next year.
Another alternative is to sell some stock for a payment to lower the interest, or you could look into a refinance to try and lower the rate.
cds4850 on
Once the car is paid off you can drop to liability insurance. That’s an additional monthly cost savings if you’re comfortable with less coverage (lien holders require comprehensive auto insurance.)
Rave-Unicorn-Votive on
What’s changed that you didn’t want to sell the stocks to buy the car outright but you do want to sell the stocks now?
ckybam69 on
it sounds like a good idea but it depens on what you will pay out in capital gains.
awp_monopoly on
Is the 16k in stocks also your emergency fund?
Romarion on
Flip it so you feel the risk, because this is a math problem but risk needs to be part of the equation. If you had a paid off car would you go get a loan at 7.5% against the car in order to buy some stocks? If not, pay off the car.
thatguy425 on
Whats the outlook on the stocks look like? I’d just snowball the car loan with extra cash.
Dangerous-Sink6574 on
I used 10k from our HSA, reimbursing ourselves from our first kid from 10 years ago (tax free!) to pay off our Tesla.
patrdesch on
Assuming that those investments are outside of retirement accounts (i.e., won’t be taxed and subject to penalty for early withdrawals), this is not necessarily the worst idea. Just understand that that money isntgoing to be exposed to the market. There is opportunity cost to using that money now rather than letting it grow over time.
P.s.: don’t take out 72 months car loans at 7.5% going forward.
jfk_47 on
Factor in 15-20% tax on that sale.
Responsible-Bat-5918 on
If you are paying eg $500/month towards a 7.5% loan. And you have ability to sell some stock to pay the loan off early. I think what matters most is what will you actually do with that $500/month you are not paying towards loan?
Good: Sell $16k in stock to pay off $16k loan at a ‘high’ interest rate and then invest $500/month till you have re-invested $16k. — The ‘guaranteed’ 7.5% return makes paying off smart.
Bad: Sell $16k in stock to pay off $16k loan and then have $500/month that ends up going towards discretionary spending and barely any actually gets re-invested. — Effectively you sold your stock to buy junk.
Often better to keep the loan to keep yourself honest.
MaybeTheDoctor on
Yes.
72 month car loans are a bad idea.
7.5% car loans are a bad idea.
Absolutely get rid of that loan any way possible, selling stock seems like a fine idea if you have no other way to get to cheap cash
workfromhuis on
Guarantee your stock jumps 60% the week after you sell it. That is the rule!
What I might do is just pay extra to short the loan. So if you payment is $500/month, pay $600 or $700/month.
It’s a bit of a hedge, preserving your assets. The stated interest rate is less relevant, it’s how much interest you will pay in total. So with extra payments, that 7.5% might effectively be 4%.
Tac0Tuesday on
I once sold off AMD stock at $3.75/share for the same reason. It happens, but I learned my own personal lesson. Fortunately, I still own a nice house today.
18 Comments
debt or invest: https://www.bogleheads.org/wiki/Paying_down_loans_versus_investing https://reddit.com/r/personalfinance/comments/16jcmnh/_/k0qox0x/?context=1 https://reddit.com/r/personalfinance/comments/zssug0/_/j1ddljd/?context=1
Yes. A guaranteed 7.5% return is solid, and you do not want a loan with that high of a rate on a depreciating asset.
I sold the equivalent of 1400 shares of Apple to pay off a $2k credit card balance in Summer, 2005.
I’d probably do this too. That’s a guaranteed 7.5% return. The market isn’t guaranteed.
Probably, but also remember that gains from selling the stock are also taxed. Build that into your math so you don’t end up with a surprise come tax time next year.
Another alternative is to sell some stock for a payment to lower the interest, or you could look into a refinance to try and lower the rate.
Once the car is paid off you can drop to liability insurance. That’s an additional monthly cost savings if you’re comfortable with less coverage (lien holders require comprehensive auto insurance.)
What’s changed that you didn’t want to sell the stocks to buy the car outright but you do want to sell the stocks now?
it sounds like a good idea but it depens on what you will pay out in capital gains.
Is the 16k in stocks also your emergency fund?
Flip it so you feel the risk, because this is a math problem but risk needs to be part of the equation. If you had a paid off car would you go get a loan at 7.5% against the car in order to buy some stocks? If not, pay off the car.
Whats the outlook on the stocks look like? I’d just snowball the car loan with extra cash.
I used 10k from our HSA, reimbursing ourselves from our first kid from 10 years ago (tax free!) to pay off our Tesla.
Assuming that those investments are outside of retirement accounts (i.e., won’t be taxed and subject to penalty for early withdrawals), this is not necessarily the worst idea. Just understand that that money isntgoing to be exposed to the market. There is opportunity cost to using that money now rather than letting it grow over time.
P.s.: don’t take out 72 months car loans at 7.5% going forward.
Factor in 15-20% tax on that sale.
If you are paying eg $500/month towards a 7.5% loan. And you have ability to sell some stock to pay the loan off early. I think what matters most is what will you actually do with that $500/month you are not paying towards loan?
Good: Sell $16k in stock to pay off $16k loan at a ‘high’ interest rate and then invest $500/month till you have re-invested $16k. — The ‘guaranteed’ 7.5% return makes paying off smart.
Bad: Sell $16k in stock to pay off $16k loan and then have $500/month that ends up going towards discretionary spending and barely any actually gets re-invested. — Effectively you sold your stock to buy junk.
Often better to keep the loan to keep yourself honest.
Yes.
72 month car loans are a bad idea.
7.5% car loans are a bad idea.
Absolutely get rid of that loan any way possible, selling stock seems like a fine idea if you have no other way to get to cheap cash
Guarantee your stock jumps 60% the week after you sell it. That is the rule!
What I might do is just pay extra to short the loan. So if you payment is $500/month, pay $600 or $700/month.
It’s a bit of a hedge, preserving your assets. The stated interest rate is less relevant, it’s how much interest you will pay in total. So with extra payments, that 7.5% might effectively be 4%.
I once sold off AMD stock at $3.75/share for the same reason. It happens, but I learned my own personal lesson. Fortunately, I still own a nice house today.