Also, the gain of paying off the loan is tax-free, whereas any gains from asset value fluctuation are subject to tax.
Re:China bans new Bitcoin deposits
by hackerboos on Wednesday December 18, 2013 @05:34AM
(#6926866)
The only reason I can think of is that there might be penalties for paying off the car loan early. But there is no excuse for the credit card debt.
Can't speak to GP, but my car loan interest rate is below the annual return on my mutual funds for the past several years. Depending on the deal you can get on your interest rates it can make sense (1.49% APR, after the 3 years I'll have paid less than 1 extra car payment as interest, or 1/36th the value of the loan as interest; any fund that rode out this recent stock market increase well will easily beat that).
ADDENDUM: I didn't state that very clearly. Start with a loan of $7200, split over 3 years of monthly payments it's $200/month. Go with the rate I actually have (1.49%) and the loan payment is $204.63/month. It works out to $166.59 in interest spent over those 36 months. I found a 3 year CD with an APY of 0.91%. If you invest that same $7200 it will be worth $7398.35 after the 3 year period. A profit of about $32. And that's with an ordinary CD, less conservative investments have a much higher potential yield. Of course you pay tax on those earnings, so the CD may not actually be profitable in this scenario, but a higher yield account almost certainly would be.
[1] Missed the edit window by this much.
At least recently, new cars loan often have interest in the range of <3%. I have one car loan at 0.9%; and my last two before that were at 1.9% and 3.9%.
But I think most importantly, a mutual fund is much more liquid than a car (or a house).
If I had the choice between pre-paying $11,000 towards a car loan and sticking money in the bank; I would probably choose to stick it in the bank or a mutual fund. I always have the option of paying down a car loan if I want, but once I pay it down, I no longer have the cash. Stuff happens, and the utility of having the cash is more than potential savings from not paying a small amount interest for a few years.
Prior to buying the coins that is.