Sunday, April 18, 2010

Should I pay off my car or not, that is the question

So as many of you may (or may not) have heard, I recently purchase a new vehicle because my old car died.  The vehicle has lasted well over 14-years but due to lack of maintenance as well as several fender benders, the car eventually died and was put out to pasture.  I am fairly convinced if I keep up the maintenance and treat my current car well, this Volvo should last well past that 14-year benchmark.

I had to go out that evening and buy another car from the dealer.

After trading the vehicle in as well as putting some money on the credit card, there was still a large amount of money that had to be financed.  Because I found out my then current car was defunct earlier in the morning,  and needed the vehicle that evening, I did not have the necessary time to transfer money around to buy the car outright.

As part of the negotiation, I got the special rate of 3.45% for 72-months.  Now comes the question: should I pay off the car or keep the payments.  It is pretty obvious right now I won't be getting anything close to 3.45% return if I just kept my money in a secure investment like a FDIC insured savings account or CD at the bank .  On the other hand, historically a 3.45% interest rate is considered extremely low, and some may consider it "free money".  Of course, any investment with that money that could potentially create a higher spread would have been way too risky.

I hate having to make investment decisions that require me to be forward looking.  Many times I don't feel much different than a tarot card reader.


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