Mitchell
Mitchell UberDork
3/30/16 2:46 p.m.

Brainstorm time. I financed about 50% of my CPO '15 Meotter when I purchased it last August. The payment is minimal, and the APR is okay, but not great. I would prefer to pay it off by the end of the summer with a company stock grant. Company stock has performed quite well since I began, well above the loan's APR, but we all know that the past isn't a predictor for the future.

Are there any good reasons to keep the loan? Would it be better for my credit to keep the loan for a certain amount prior to payoff? I don't have any solid plans to buy a house or any other cars within the next few years.

sachilles
sachilles UltraDork
3/30/16 2:52 p.m.

Double pay on it if you are able, but keep the investments in place.

trucke
trucke Dork
3/30/16 2:54 p.m.

Your credit score would still be good, even paying it off now. You can calculate how much in total interest charges you would save by paying off the loan early.

mazdeuce
mazdeuce PowerDork
3/30/16 2:54 p.m.

What other open credit do you have and use? Periodically using and paying off credit is good for your credit score. You also need to look at realized gains on the stock grant. Is this an options grant with a strike price or a full grant where you have to pay the taxes now? Different ways to approach the taxes depending.

Mitchell
Mitchell UberDork
3/30/16 3:08 p.m.

Stock grants are RSUs.

Dr. Hess
Dr. Hess MegaDork
3/30/16 3:13 p.m.

Pay it off. Loans suck.

NOHOME
NOHOME PowerDork
3/30/16 3:23 p.m.

I will always advocate for a debt free existence.

spitfirebill
spitfirebill PowerDork
3/30/16 3:28 p.m.

What are the taxes going to be when you cash out the stock? Do you also pay the 10% penalty? I would think that might off-set the interest savings.

Duke
Duke MegaDork
3/30/16 3:33 p.m.

If the car payment is minimal, I would just overpay the monthly to the greatest extent budget allows. This will shorten the term and reduce the total interest paid correspondingly.

Unless the investments are 100% liquid with no surrender charges or tax burden, I'd leave them parked and pay the extra out of your budget.

szeis4cookie
szeis4cookie HalfDork
3/30/16 3:42 p.m.
Duke wrote: If the car payment is minimal, I would just overpay the monthly to the greatest extent budget allows. This will shorten the term and reduce the total interest paid correspondingly. Unless the investments are 100% liquid with no surrender charges or tax burden, I'd leave them parked and pay the extra out of your budget.

This is the right answer. If you're worried about the company's future performance, you could re-balance your portfolio, but as long as your investments return better than your APR, keeping investments in place is the right answer.

Mitchell
Mitchell UberDork
3/30/16 3:48 p.m.
spitfirebill wrote: What are the taxes going to be when you cash out the stock? Do you also pay the 10% penalty? I would think that might off-set the interest savings.

At time of vest, shares are automatically sold to cover estimated taxes.

mtn
mtn MegaDork
3/30/16 3:52 p.m.

How much is left on it, and what is the APR?

I'm inclined to say keep the loan in this situation but don't have enough information to make a decision either way.

ProDarwin
ProDarwin PowerDork
3/30/16 3:54 p.m.

What is the APR of the loan? What return would you gen on the money elsewhere?

Do whichever yields a greater return.

mazdeuce
mazdeuce PowerDork
3/30/16 3:57 p.m.

Another question, did you max out your IRA for this year? How about last year (Can you still do that until April 15?) Tax advantaged investments are an important tool, use them.

z31maniac
z31maniac MegaDork
3/30/16 4:20 p.m.

If you can easily afford your current debt load, I'd prefer the liquidity to no payment.

Datsun310Guy
Datsun310Guy PowerDork
3/30/16 6:14 p.m.

Proverbs 22:7 the rich rule over the poor, and the borrower is slave to the lender.

Duke
Duke MegaDork
3/30/16 7:38 p.m.
Datsun310Guy wrote: Proverbs 22:7 the rich rule over the poor, and the borrower is slave to the lender.

...if the borrower is unable to live within his means.

SVreX
SVreX MegaDork
3/30/16 8:27 p.m.
Datsun310Guy wrote: Proverbs 22:7 the rich rule over the poor, and the borrower is slave to the lender.

I'll take out of context Bible verses for $100, Alex.

Fueled by Caffeine
Fueled by Caffeine MegaDork
3/30/16 9:54 p.m.

I'd say this.. If someone gave you the money instead of the stock.. would you buy the same stock with all of it? If not... then do what you would with it. If you would buy that stock.. then keep it there.

wearymicrobe
wearymicrobe UltraDork
3/30/16 10:15 p.m.

If the interest rate is lower then the profit you are making investing the money in aggregate; hold off. If it is higher then pay it off. Its that simple.

Mitchell
Mitchell UberDork
3/30/16 10:47 p.m.

If I was granted the same amount in cash, I would pay down debt, because that seems most intuitive. But unlike the stock, cash hasn't gained 80% in value to me since I began less than 2 years ago, so what do I know.

Basil Exposition
Basil Exposition Dork
3/30/16 11:10 p.m.
Mitchell wrote:
spitfirebill wrote: What are the taxes going to be when you cash out the stock? Do you also pay the 10% penalty? I would think that might off-set the interest savings.
At time of vest, shares are automatically sold to cover estimated taxes.

This may not be necessary. You likely have the ability to pay cash in for the taxes and keep all the stock. Of course, you have to have the cash and it has to make economic and investment sense to own more of the stock. If the grant price is less than current market price, it may be worth doing regardless.

You've asked what appears to be a simple question, but there are only complicated answers. For example, if the stock is worth more than the grant price, you'd have to pay taxes at a higher rate on the gain if you sell immediately rather than wait a year for capital gains treatment. You could sell some of your current stock, but it sounds like you'd be paying a large tax bill on that, even with capital gains treatment.

Without more detail, I'm going to make a WAG and vote with those that say do both-- keep the investment AND pay down the debt as quickly as possible. I'm usually in the pay-high-cost-debt before all other moves, but not enough info to tell.

Don't pay or take a loan just to boost credit score. It isn't worth the cost and it may do no good. I've had no loans besides a home mortgage in ten years and pay off my credit cards every month and my score is over 800.

SVreX
SVreX MegaDork
3/31/16 6:10 a.m.

I am a major fan of debt free living. But that is for personal finance, not business.

Investing is much more like running a business then personal finance. (Though there is a great deal of crossover)

Dogged commitment to debt aversion can sometimes be a very bad business decision.

Analyze it like a business decision. Determine the value of the investment. Learn the tax implications. Understand the fees. Measure the costs, including the financing costs. Estimate the growth potential. Then decide.

At the same time, work toward debt free personal living.

foxtrapper
foxtrapper UltimaDork
3/31/16 7:03 a.m.

Liquidity is an important commodity, especially when life hits the fan.

How much are you risking paying off the loan vs how much money are you spending keeping the loan? I'm not actually asking you to tell me the values, I'm suggesting you contemplate it and decide for yourself.

Said while still carrying a low interest loan on the Snaab, just so I can keep cash in the savings account for emergencies and such.

STM317
STM317 Reader
3/31/16 7:12 a.m.

Investments only make/lose money when you sell them. If you think the value of the stock might decrease from here, or you're just comfortable with the gains you've gotten and want to cash out I see no problem with that. Just make sure you're aware of any taxes/penalties that might be incurred before you make that move.

Having cash in the bank can definitely come in handy for emergencies, but eliminating a monthly expense can free up more cash, faster. In an emergency, the last thing that I'd want to worry about is paying for the emergency, and then having enough to make a monthly payment as well.

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