Advice : pay off car?

Pay off the car, but don't party away the R2300...

Your effective return, if you settle the debt is interest rate/(1-"marginal tax rate". Let's say your marginal tax rate is 35% and you're paying prime on the car, then by settling you are effectively earning 18.46% pre-tax guaranteed.

That's your hurdle rate if you want to invest in anything else and not settle the debt.

but don't party away the R2300... ;)
 
Dolby said:
hehe ...

The reason I asked is becauses there are two views on it : one camp says 'pay off all debt as fast as possible', and the other camp says 'it depends - leave certain debt'

In all honesty, it seems the more experienced people in finance (also wealthier people) seem to be the second group while the general population seem to be in the first.

For example, I had quite a bit of debt (various) and received enough money to clear them all out 8 months ago. However I was advised to pay off only the short/high interest debt only - which is why I currently have my car.

The same camp also say a vehicle residual depends on the individual and it's not a straight out 'no' as most say.
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Yes its true. The devils in the details though and thats where most people get it wrong. They don't go through those details.

If you'd rather invest than pay off your debt you have to research and make sure that your returns would be more than what you have to pay for your debt. Otherwise you might think your making money with your investment returns but mean while the debt is sucking it all and more back out again.

And remember the sooner you pay off your debt the sooner you have extra cash to invest with again, only this time theres nothing eating away at your net worth.
But then again if you somehow find a form of investment that gives you 40% then its a better choice than that 12-18% your car is costing you.
 
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RunX ... not looking at changing it or buying a new car though.

And yea, the R2300.00 saving would be put to good use
 
Take the money, invest it. Use 1/2 of the interest and put that into the monthly car payment, above the R2300. That way you'll pay ith car off much quicker, and at the end you'll have a fully paid car and you'll still have the lump sum.
 
Amida said:
What about people like Branson that was in millions of debt for the most part of his life.

If you have job security and can afford the R2300 a month why not take a risk?
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Car debt is the the kind of debt that you want to get rid of though, think about it this way: What is the value of your car now and in two years ? Obvioisly its worth more now... so by paying it off slowly you loose even more money.

A house is a different story, a house might be worth 50% more than what you paid for it in 2 years, so its not as bad if you don't pay it off quicker. Plus you can make money off the house if you rent it out

So if your debt is making you money then its ok
 
Pay off the car!

If you have any bond capacity buy a business property and rent it out. Say you get a factory for R500k - bond is R5,000/month. Rental income is R3,500/month going up by 10% per annum. Your cost: R1,500 + rates, etc. After 8 years you've probably paid the place off and have an income for life.
 
Zwieback said:
Pay off the car!

If you have any bond capacity buy a business property and rent it out. Say you get a factory for R500k - bond is R5,000/month. Rental income is R3,500/month going up by 10% per annum. Your cost: R1,500 + rates, etc. After 8 years you've probably paid the place off and have an income for life.
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That's under ideal conditions. I'd love a set amount to be in my account on the 1st.

In reality you need to fight with tenants to get money (during the enitre month), or they default on rent, things need repairing during the lease etc

I sepnt R60,000.00 in December/January fixing things up ... and tenants have paid me mid-month since their lease started 3 months ago. That's after calling, emailing and SMSing every day and filtering through lies about when it should arrive in my account.

Rent is R8,500.00pm - R700.00om rates ... and now I've decided to get an agent to collect each month as I can't stand talking to the tenant. That's another R500.00. So from that, I get R7,300.00 ... so 8 months till I break even from my renovations :/
 
Dolby said:
RunX ... not looking at changing it or buying a new car though.

And yea, the R2300.00 saving would be put to good use
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Oh. It's a Toyota Runx. I drive it too. Keep it. I thought you were driving some "fancy" car that you could sell, make some few bucks and downgrade to a RunX. Don't you have other debts?
 
It depends... are you going to put it into a mortgage? If so, I'd take the full amount and put it into the property.

Although the interest rate on a mortgage is lower, the term is so much longer. So that the interest on that amount will be far higher than you'd pay on the relatively short term loan on the car. So net you'd save.
 
The problem for me with paying off my car as opposed to investing is that then my car will be worth a lot more (net) and I would then trade it in and upgrade... :/
 
Another option (depends on the bank) - get an access type account linked to the car loan - put the money in which will remove the interest part of your payment. Then you are saving the interest every month -while still having full access to your cash. Same principle as putting into your mortgage.
 
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