My car lease is ending in a few months. The payoff amount in $21K. I have 2 options 1. Pay off the car 2. Take a loan of $21K Although I have money to pay off, I am thinking of instead taking a loan and investing in S&P 500/Vanguard Funds. Also I am getting 2.83% APR for 7 years. I know that it’s usually advisable to take loan for 3 or max 5 years. I would end up paying ~$2K in interest. Assuming a modest return of 5% in S&P 500 I will end up getting ~7K as return. At 10% it will be ~$15K. I know what I am saying is very very contrary to what most people do i.e. pay off car loan. Can you please prove why am I wrong? Am I missing anything?
I would do the same. Take advantage of lower interest rates and put the money in investment accounts for it to generate better returns.
Think longterm. People will say why pay interest on a depreciating car but investing has a higher outcome. If you made $200/hr. Are you gonna take an hr off to change your own oil and save $50 or work that hr and pay $50? Thats how i see it
Don’t forget to account that your car value will drop as well.
Regardless of loan or payoff it will drop the same.
I would do the same, make use of the current bull market. Put your money in a vanguard index fund. The market is up close to 5% in just January itself!! And take a loan which will also help build a credit history.
why ask if you don’t want a solid opinion?
I want people to prove me wrong as I still haven’t decided !
Take a loan, you can put that 21k towards good use. That’s only about 1k of loan interest over the course of the loan length. Let’s say it’s a 3 year loan. Then if you put that 21k into an S&P fund averaging 7% return, you’re looking at ~2.5k gain. So you’re net positive
Dump the car and take a new lease for same or lesser value.
take the loan. this is how debt should be used.
What happens if the market hits a wall and we see a 20% short term loss? You’re basically trading on margin. Plan accordingly.
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Why is your APR so high, and why are you taking out such a long loan? You’re willing to pay 10% of the car’s value in interest on a used car? Seems weird.
This is the lowest APR you get currently!
I just bought a car and got .9% for a 5-year loan.