Hello, Friend got a new truck. Price of truck OTD = $45k Down payment at time of finance = $2k ($43k financed) Interest = 6.9% Total for 75 months = $55.5k roughly which means it’s about $10k of ONLY interest. Payment = $710/month
Correct me if I’m wrong but in theory this truck can be paid off tomorrow and my friend pays none of the $10k interest, right? Anyway, my friend has a check that he wants to use of about $23k. My question is: is it better to put the $23k towards the auto loan right now (ensuring that the money goes towards the principal) or is there a better alternative like placing the money in a HYSA and earn about a 5% interest (I know it can fluctuate) and use that account to pay off the debt gradually? He’d be paying a lot more than the minimum monthly as well. I guess the only upside to this is though is having more cash liquid if ever needed.
Gonna disagree with some of the other comments here: If his plan is to throw it into a HYSA (~5%), he’s better off using that lump sum toward the car (assuming no penalty). 6.9% APY on $43,000 = ~$3000 a year, 5% APY on $23,000 = $1,150 a year.
If he wants to invest it to get ahead, he’d have to beat the 6.9% APY. That’s the purely “numbers” answer though. If $23k sitting in a HYSA gives him a sense of security, I’m all for it.
This is the answer. Thanks for laying it out clearly and simply.
The only thing here is that the $25k in the hysa won’t depreciate. Just an added to consider. But I guess if he keeps the truck for the longer term in should matter. Right?