I have about R90K oweing on my car. Last payment due end Feb 2012. What would your advice be and why? Pay of my car and save the monthly installment or invest the R90K and continue paying the installment on my car? If you suggest the latter, what kind of investment options can i look at?
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Paying off my car???
- Thread starter GTI07
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Crusader
Executive Member
It's always best to pay off debt first unless you can find an investment that provides higher interest than what the debt is costing you. It's doubtful that you'll be able to find a guaranteed investment that would be able to do that.
first of all it isnt always so clear cut
for instance: there may be an early payment penalty, im assuming a 5 year payment term
at this stage the early payment fee may have already reduced to 0 or it may not have
(there is a perfectly valid reason for early payment penalties, however more so for an early mortgage repayment, but never the less)
consider what u might need the cash for in the mean time:
are there any more pressing matters (credit card debit should go first)
may be u want to hold onto some of the money for other possible emergencies where the money could save ur ass... say the possibility of losing ur job between now and whenever
if all ur insurance/health insurance is up to date and there are no penalties for paying the total off early and it is ur only debt besides ur mortgage left then yeah paying off the car is a good idea
(as the interest rate u r paying on the car will likely be higher than possible investment return)
perhaps consider paying R45k to the car, thereby reducing the monthly amount (or the term if u keep the payments the same amount) and putting the other half in a money market account - not the greatest return, but still its secure and u have access to it in case of an emergency
additionally - how did u come accross 90k suddenly
if u put this into ur pension account u can likely save some tax --> itll be taxed at a much later date, between now and then u earn interest on the portion that otherwise would have been taken immediately for tax
this difference is possibly enough to justify servicing the debt on the car at a technically higher rate
for instance: there may be an early payment penalty, im assuming a 5 year payment term
at this stage the early payment fee may have already reduced to 0 or it may not have
(there is a perfectly valid reason for early payment penalties, however more so for an early mortgage repayment, but never the less)
consider what u might need the cash for in the mean time:
are there any more pressing matters (credit card debit should go first)
may be u want to hold onto some of the money for other possible emergencies where the money could save ur ass... say the possibility of losing ur job between now and whenever
if all ur insurance/health insurance is up to date and there are no penalties for paying the total off early and it is ur only debt besides ur mortgage left then yeah paying off the car is a good idea
(as the interest rate u r paying on the car will likely be higher than possible investment return)
perhaps consider paying R45k to the car, thereby reducing the monthly amount (or the term if u keep the payments the same amount) and putting the other half in a money market account - not the greatest return, but still its secure and u have access to it in case of an emergency
additionally - how did u come accross 90k suddenly
if u put this into ur pension account u can likely save some tax --> itll be taxed at a much later date, between now and then u earn interest on the portion that otherwise would have been taken immediately for tax
this difference is possibly enough to justify servicing the debt on the car at a technically higher rate
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Paying off your car is the biggest bull that we have been brainwashed with. If you pay off your car, it will take you years to save R90K again if at all possible. If your car installment is R4000 per month, it might seem like a lot right now but as your salary increases, the 4000 becomes less and less in the bigger picture. Yes you will pay x amount of interest, but the 90K growing in a satrix resi or satrix 40 account will also be growing. At some stage with dividends and growth your 90k will be worth a lot and the day that your car is paid off you will still have a very nice balance 90k++++ What if you pay your car off and it gets stolen - your 90K is gone. The value drops too fast and and the insurance will only pay out what the cars is worth at that time.
To pay debt off early with spare cash is a bad idea all round. Different story on a house as a house grows in value but even for a house you have to do a lot of calculations.
Let me make this statement and tell me if I am wrong or right - Lets assume your house installment is 10k per month. 120k per year + rates and taxes+ maintenance could = 140k. If the value of your house does not increase by 140K in that year, then that is a bad investment. right or wrong?
To pay debt off early with spare cash is a bad idea all round. Different story on a house as a house grows in value but even for a house you have to do a lot of calculations.
Let me make this statement and tell me if I am wrong or right - Lets assume your house installment is 10k per month. 120k per year + rates and taxes+ maintenance could = 140k. If the value of your house does not increase by 140K in that year, then that is a bad investment. right or wrong?
ur entire post is absurd:
its a very situational thing -> im not sure how he calculated the 89k
im gonna assume it was monthly premium * amount of months left (need more info the clarify from the poster, but working on this)
paying it off now will be the outstanding value of the capital portion only - very rough estimate would put this in the 50 to 60k range
so pay that off now, and put the monthly premiums into a bank account everymonth and ignoring the actual (now positive interest ull earn on those in the mean time) u will have 89k in ur bank account on end feb 2012
(in addition to the 30k odd he had spare originally)
so ur explanation there is very misleading - he isnt suddenly going to throw his monthly installment payment away now....
next wrt to ur mortgage explanation i cant even begin to think wtf ur point is - it is completely wrong
IF u owned the house and have no outstanding mortgage and u invested in ur house (by say building a new room) at R10k per month u can expect ur house to grow in value by atleast that amount
however ur mortgage installment isnt paying for ur house in the way u think it is (that is, adding to its value), its to service the debt u made to buy the house that is to say
u went to the bank - they paid in full for ur house and now in turn u r paying them back (with interest) on the money u borrowed from them
this invalidates ur point
and as i pointed out above, it even depends on how exactly he suddenly came accross an amount which is large enough to pay off the full amount
its a very situational thing -> im not sure how he calculated the 89k
im gonna assume it was monthly premium * amount of months left (need more info the clarify from the poster, but working on this)
paying it off now will be the outstanding value of the capital portion only - very rough estimate would put this in the 50 to 60k range
so pay that off now, and put the monthly premiums into a bank account everymonth and ignoring the actual (now positive interest ull earn on those in the mean time) u will have 89k in ur bank account on end feb 2012
(in addition to the 30k odd he had spare originally)
so ur explanation there is very misleading - he isnt suddenly going to throw his monthly installment payment away now....
next wrt to ur mortgage explanation i cant even begin to think wtf ur point is - it is completely wrong
IF u owned the house and have no outstanding mortgage and u invested in ur house (by say building a new room) at R10k per month u can expect ur house to grow in value by atleast that amount
however ur mortgage installment isnt paying for ur house in the way u think it is (that is, adding to its value), its to service the debt u made to buy the house that is to say
u went to the bank - they paid in full for ur house and now in turn u r paying them back (with interest) on the money u borrowed from them
this invalidates ur point
and as i pointed out above, it even depends on how exactly he suddenly came accross an amount which is large enough to pay off the full amount
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The guys that know, know that a house is only an investment if you make a profit the day you buy ex. when you buy a million rand house for 600k. That 400k is the investment and yes, I agree if you build on to increase the value of your house more than what you spend on the house BUT who has the ability to build onto his house every year?
superfantasties
Senior Member
I cant even imagine buying a car one day.... SOO MUCH MONEY!! 
HavocXphere
Honorary Master
@GTI07: Do what crusader said.
Kinda hilarious how everyone in this thread is on a totally different wavelength.
Kinda hilarious how everyone in this thread is on a totally different wavelength.
Smooth Criminal
Expert Member
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It's funny how everyone on this forum is either a financial, legal or relationship expert - especially when it's not their money or lives involved. Just do whatever you feel will benefit you financially.
If it were my money, I'd spend ~R50k towards paying off the car. That would leave me with R40k to play around with investments and the like, and free up close to R2500 in disposable monthly income by reducing the vehicle installments to ~R2000 p/m.
Anyway it's your choice and your money, so try and make it work for you.
If it were my money, I'd spend ~R50k towards paying off the car. That would leave me with R40k to play around with investments and the like, and free up close to R2500 in disposable monthly income by reducing the vehicle installments to ~R2000 p/m.
Anyway it's your choice and your money, so try and make it work for you.
Im in the same boat. Owe R90k on my car and thinking of putting down a R20k deposit, just to reduce my term so i can pay this thing off asap. You cannot be charged early payment penalty anymore. Thats what the new credit act was for.
Thought this was going to be an easy choice 
I dont have any other debt except the bond on my house. I have just been through retrenchment but started working again recently, although i have taken a knock in renumeration. I bought the car for R260K in 07, put a 60K deposit and currently paying around R4500 pm.
I also have no pension/provident/ra etc <---- Would your advice change based on this? Also, what would be the best investment choice for me?
I dont have any other debt except the bond on my house. I have just been through retrenchment but started working again recently, although i have taken a knock in renumeration. I bought the car for R260K in 07, put a 60K deposit and currently paying around R4500 pm.I also have no pension/provident/ra etc <---- Would your advice change based on this? Also, what would be the best investment choice for me?
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ksweb
Well-Known Member
You should also always pay off/contribute more towards your most expensive debts first, by most expensive I mean the debt where you pay highest interest rate. The best thing to do, is to make a list of all your debt together with the corresponding interests, then start paying it off from highest to lowest. This is a good exercise as you will be surprised at how much you are actually paying in interest rates and it will help to give you a better understanding of your current financial position.
Once you have paid off a debt then move on to paying the next debt on your list.
Once you have paid off a debt then move on to paying the next debt on your list.
ksweb
Well-Known Member
Thanks for the link. I understand the Macro level of what she is trying to say. Wish that she could have done some sort of comparisons though. TBH, my mindset was based around paying my homeloan of first vs investing the extra money i put into my bond. Still so undecided and confused regarding paying of my car or investing the R90K.
Smooth Criminal
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Just one question - why do you have to spend the entire 90k on just one thing? Is there a reason for not distributing it among your debts i.e. x% towards the car, y% towards the bond and z% towards investments?
the reason she did not do any comparison is due to what i said earlier it depends on too many things
like ur age, term left on ur house, interenst rates on ur house etc
if u r really sure that u will not need cash for an emergency anytime soon (because for instance u already have disability,health and car insurance in order) then a good approach might be
90k pay off ur car
meaning the R4500 will fall away (altho itll likely include an insurance cost which will ofcourse remain)
pay R2000/month extra on ur homeloan (this can SIGNIFICANTLY reduce the outstanding term but again to what extent depends on the situation above relating to ur mortgage)
and then start contributing the other R2500 to a RA
ONCE ur house is paid off, switch that equivalent amount of the mortgage repayment into the RA
these are ofcourse the longterm ideals and life isnt always that easy
cuz the consumers choices arent always 100% rational there is an entire field of theory into "behavioural finance" and the emotional level of choices people make in contradiction to the logical needs, for example blowing that extra money on a tv or a holiday might make u very happy now and so u choose to do that even tho u know it might not be the best decision
however theres no point in trying to save ALL the money ur ever going to get and live unhappily cuz u dont have atleast a few luxury purchases
like ur age, term left on ur house, interenst rates on ur house etc
if u r really sure that u will not need cash for an emergency anytime soon (because for instance u already have disability,health and car insurance in order) then a good approach might be
90k pay off ur car
meaning the R4500 will fall away (altho itll likely include an insurance cost which will ofcourse remain)
pay R2000/month extra on ur homeloan (this can SIGNIFICANTLY reduce the outstanding term but again to what extent depends on the situation above relating to ur mortgage)
and then start contributing the other R2500 to a RA
ONCE ur house is paid off, switch that equivalent amount of the mortgage repayment into the RA
these are ofcourse the longterm ideals and life isnt always that easy
cuz the consumers choices arent always 100% rational there is an entire field of theory into "behavioural finance" and the emotional level of choices people make in contradiction to the logical needs, for example blowing that extra money on a tv or a holiday might make u very happy now and so u choose to do that even tho u know it might not be the best decision
however theres no point in trying to save ALL the money ur ever going to get and live unhappily cuz u dont have atleast a few luxury purchases
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incidentally, the amount i saved up equates to the amount i owe on my car, the amount i owe on my bond is way more than that. My initial thought was to pay the car off so i save on the interest i would have paid if i continued with the installments. Then take the R4500 i spend on an installment and save/invest that money. Just looking for views on how to make my R90K work best?