I just had a monumental financial experience

TurboMinivan

Still plays with cars
Location
Lehi, UT
For only the second time in my life, I just paid off the loan for a car that I still own.

Nearly every time throughout my life when I bought a car expensive enough to finance (read: it cost more than the cash I had on hand), I ended up selling or trading away the vehicle long before the loan was paid off. This was usually due to me changing my mind about cars, although the fact that I would only make the minimum required payment certainly didn't help matters. But that's how it almost always was.

Until today, the only exception was my current Wrangler. At the time I bought it, I owned another Wrangler outright; I knew I would eventually sell that one and use the proceeds to pay for most of the loan on the new acquisition. I don't recall exactly how long I had that loan, but it was probably around two years before it was fully paid off.

This time refers to my Leaf. When I bought it 21 months ago, I could have paid for it outright with cash I had on hand. However, doing so would have required me to drain all of my cash reserves, and I decided I didn't want to do that... so I took out a $7k loan for the full amount including taxes and such. I set up a 5yr loan, even though I was planning from day one to pay it off much sooner than that. At first I was making only the required $130 payments, but eventually I started paying $500 here and $700 there as I had surplus funds to do so.

A few days ago, I noticed my loan balance was down to only $1390. My emergency reserves are in good shape, and I knew I was getting a few hundred dollars today which would allow me to pay off the Leaf's loan without touching my emergency fund. An hour ago I went to an ATM, withdrew today's money, deposited it in the bank, then went online and paid off the loan. Woo-hoo!

For all you guys who keep cars for the long term, this is probably boring to hear. But for me, it was a monumental moment and it felt awesome.
 

Cody

Random Quote Generator
Supporting Member
Location
East Stabbington
People pay for those cars?!

Monumental Indeed!

All kidding aside, I'm sure it feels good to lift that burden off of your plate.
 

kmboren

Recovering XJ owner anonymous
Location
Southern Utah
I love having cars paid off. I am proud to say I know own 5 cars plus a camper and flat bed trailer all paid for. Granted ever one of those except my wifes 2013 Passat are 1998 or older.
 

TRD270

Emptying Pockets Again
Supporting Member
Location
SaSaSandy
Did the same with my dude-aru small loan paid it off shortly. I’ve learned I hate car payments and don’t want one again. When I had to buy something to keep here for back and forth to airport I chose something I could pay cash for vs what I wanted. Hopefully helps in the long run. All of our cars are out right owned. Congrats sir!
 

TurboMinivan

Still plays with cars
Location
Lehi, UT
People pay for those cars?!

Har, har. (LOL)

After re-reading what I wrote above, I make it sound like I never keep cars for any length of time. While there was a time in my life when that was very accurate, it is becoming less true as I get older. For example, I've had my Suburban for 8 years now and my Miata for substantially longer than that (does it still count if the car doesn't run?). I guess it's just that, of my current eight vehicles, six of them cost me $1500 or less to purchase.

Anyway, thanks for all the positive comments. :)
 

Coco

Well-Known Member
Location
Lehi, UT
I know that feeling! Until about 5-6 years ago, every vehicle I owned was purchased outright. Since then, I have had loans, and/or owned vehicles outright.

Currently I own my truck outright, and have a loan on the SXS and the wifes car. We are currently doubling up payments on the wifes car, and that is projected to be paid off in (IIRC) 13 months. Once paid off, we will snowball that into the SXS and get that paid off. At that point, we have discussed a possible new truck (mine has higher mileage), but we will see what happens when we get to that point. Maybe buy @Herzog Taco! :rofl: I kid.

Definitely decided though I don't want anymore than 2 car payments, and really only 1 at a time.
 

I Lean

Mbryson's hairdresser
Vendor
Location
Utah
Nice work! Now pretend you still have that car payment and pay it into a money market or cd account and watch the saving stack up!

Or make the same payment to yourself for the next 5 years and pay cash for your next car.

Many great options.
Why can't both of these coexist? They seem like the same thing to me. (or should be)
 

TurboMinivan

Still plays with cars
Location
Lehi, UT
Now pay off your house...

No doubt.

At one time, I had my mortgage balance drop below $100,000. Seeing only a five-figure balance really made me happy... and then came my divorce. Luckily, the house was not considered a marital asset since I owned it before the wedding and thus I was not required to sell it. However, I was required to cash out a fat chunk of equity and give it to her on her way out the door. This forced me to re-fi into a new 30-year mortgage with a balance far exceeding what I initially paid for the house. :(

Planning for retirement in 15 years, in December I re-fied into a new 15-year mortgage. Even if I don't make extra payments, this will keep me on track to have the house paid off when I retire. Of course, I will send some extra money to the principal here or there when possible--I truly would like to pay it off even sooner.
 

TurboMinivan

Still plays with cars
Location
Lehi, UT
The equity of a small percentage simple interest loan is better leveraged (for me) elsewhere.

Every time I think about this concept, I get very conflicted.

The argument is brought up frequently in investing forums. "Instead of paying additional principal on your low-rate loans, only pay the minimum and instead invest your surplus cash for a greater gain!" From a financial perspective, it makes perfect sense... so long as your investments reliably generate a higher return than the interest rate on your loan(s).

Here, I'll even do a math example that could apply to me right now. My new mortgage payment is $1050 for the next 15 years. Let's say I have an extra $450 which I could add to my payment every month. If I followed this plan and kept paying extra principal, my loan term would be shortened by 60 months, turning my 15-year loan into a 10-year loan. Nice. After the mortgage is paid off, let's say I decide to keep spending that $1500 each month, but now I put it into a newly-opened S&P index fund. After five years--ie, to the point in time when my original mortgage would have been paid off--and assuming an average annual return of +8%, this investment account will be worth about $112,000. Not bad.

On the other hand, let's say I never paid a penny extra on my mortgage. Instead, from day one I opened an S&P index fund and immediately began investing my $450 monthly. Assuming the same average annual return of +8%, once my mortgage was finally paid off 15 years in the future, the investment account would be worth $157,000--an extra $45,000. Like I said, I get it.

For conversation's sake, let's say my house was already paid off. Would I go and take out a mortgage on it, just so I could turn around and dump the entire loan amount into the stock market? Not a chance in hell. In my mind, that is akin to investing on margin and is foolish for a variety of reasons. Bottom line: if I wouldn't take out a loan on my house in order to invest the proceeds, why would I put off paying for my house by investing my extra money? It's essentially the same thing, at least to me. That's my hangup.

(To everyone reading this: if you happen to be someone who is investing your surplus money rather than accelerating the payoff of your mortgage, don't let me coax you into changing. If you're comfortable with what you're doing, keep it up. You do you.)
 
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