Adios Auto Loan

This month, my monthly cash flow received a nice boost.  Finally, after 60 long months, I made my final payment on this oh-so-beautiful, dented (that I’m never going to fix!), black Toyota Camry! Now, I join Lanny in the “I’ve paid off my auto loan” club!

The feeling when I made the final auto loan payment

Last year, after purchase my wife’s new car and our first house, I felt a little overwhelmed with debt and our standard monthly cash outflows.  It sucked seeing so much of our hard-earned cash fly out the door to banks and other financial institutions.   I became so aggregated that I vented in the form of a blog post, which ultimately led to me calling myself out to reduce my debt load.  I learned that I FREAKING HATE having dent and thatiff I wanted to be financially free, there was no way I could maintain the level of debt payments I was making.  It made the hurdle to jump that much higher.     I decided to attack my debt, starting with my highest interest rate debt first.  The lowest of which were those pesky auto loans

Since I wrote the article, a lot has changed.   We had to make an adjustment to my wife’s student loan payment plan based on her new career (Yay!).  Then, we also decided to contribute every extra dollar we earn by side hustling to paying-down our mortgage.  Both were welcomed adjustments to our debt-paydown plan.

This article is about my auto loan though, not about our student loan debt and mortgage.  You are all probably thinking that we are tired of hearing you complain about those items.   Well, you’re right, I”ll move onto the auto loan now.  At the time I wrote my debt article in the fall, I mentioned that I had 8 monthly payments left for $363 dollars.  Since this was the shortest debt, why didn’t I attack this loan first to reduce my cash outflow?  Well, the interest rate was 0% and I couldn’t think of one reason to pay this loan off early.  So I decided to let this loan slowly pay-down until my principal balance hit $0.

Usually we are writing about some new strategy or way we hustled to pay our loans off early.  Lanny, for example,  decided to allocate extra payments to pay-off his auto learn earlier.  But for me, that’s not the case.  Rather, I simply reach the end of the line and made my last payment.  My balance trickled down to zero finally after 60 excruciating months!  Just like that…it was over. My car loan was over with!  BOOM

I asked myself how I felt after seeing that last $363 payment leave my checking account.   It felt great, but I wanted to have some fun with this.  One of my favorite shows back in the day was The Office.  The amount of times the show was quoted in my college house with my roommates was just incredible.  After all, who couldn’t love the show.   When I saw my auto loan reach zero, I felt like Michael Scott (Steve Carrell’s character for those of you aren’t familiar) felt when his arch-nemesis in Human Resources Toby decided to quit.  This is hands-down my favorite office episode.  On his last day, he threw a big party and sang him a few parody songs.  So in my mind, I kept on singing “Goodbye Auto Loan!”  This was how excited I was after that last payment.

Now what?

All jokes aside and now that the fun is over, I asked myself my favorite question….now what?  What should I do with the extra cash flow that I now have each month?  I feel like I discussed this answer at length over the last few months.   With interest rates rising, paying off my low, fixed rate mortgage will not be the most efficient use of this capital.  I discussed this at length in my side hustle income post linked earlier.   So for now, I think the answer is simple to this one.  I am going to use the extra capital to continue to invest and grow my passive income.   For now, until I reach a different crossroads ,the answer is as simple as that.   I will increase the amount of each stock purchase I make by $363 (assuming I make one purchase a month).   Assuming a 3% average dividend yield, that would add an extra $10.89 of forward dividend income.   Now, instead of a monthly cash outflow, I will turn this $363 each month into an income producing asset.  That’s the name of the game right there!

What are your thoughts about my plan?  When you paid off your auto loan, what did you do with the extra cash flow each month?  Would you use the cash to pay-down my mortgage instead?

Bert

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31 thoughts on “Adios Auto Loan

  1. I’m pretty debt averse, so if it were me, I’d put the extra money to the mortgage. Other’s I’m sure will say you can get a better ROI, by investing it. Risk reward decision ,right? Sure thing = lower return potential. That looks like a Camry? I’m still driving my 09 4 cylinder Camry base model. It goes from zero to 60 mph in about 5 minutes but it has always gotten me where I want to go. Tom

    • Tom,

      You’re right, it is a risk reward type decision and there are plenty of different opinions on the topic. It is hard, I’m always debating about keeping my lower rate mortgage (compared to the current market) and investing the capital or reducing the mortgage to unlock future cash flow earlier. It is not an easy decision, but I don’t think there is a wrong answer to it!
      And yes that is a fancy Camry. By far my favorite car I’ve owned and I love it. Camry’s don’t win style points, but man do they last a while and are pretty low maintenance. Glad we’re both members of the Toyota family!

      Bert

  2. Excellent! Funny, I just paid mine off In April, and it’s the same exact car as yours. Just red. Doesn’t it feel good to not have an auto loan?? I approve of your plan by using the additional funds for stock purchasing. I’m currently paying my old monthly payment to myself and will be using the cash in the future for a new car. I may do some lump sum dividend stock purchasing with the cash I’m saving as well.

    Either way, in four years I plan to use some, if not all, of the funds I saved to purchase my next car. I will be gifting my camry to my daughter who will be old enough to drive by then.

    • Larry – that’s hilarious! I love this Camry model and it is going to last us a long, long time. Did you get in the 0% financing special as well around the same time? I like your plan, especially if you know that you are going to be purchasing a new car on the horizon. I’m guessing you are stashing those funds in a high interest rate savings account as well?

      Bert

      • Bert – My favorite car so far of my driving career! I didn’t get 0% financing unfortunately, mine was 2.4%. I’m looking to drive the car for at least another 4 1/2 years. I should have a pretty solid amount for either a nice down payment on a newer car, or enough to pay cash in full for a slightly used car. So far I am stashing those funds into a high yield online savings account. I’ll let it build up a little and move funding as time goes on for discounted dividend stock purchases.

        • 2.4% is not a bad rate for an auto loan at all! You should easily have this car for another 4.5 years, especially with this model 🙂 That’s plenty of time to save up for the down payment if you are looking to avoid debt all together. Which online savings account are you using?

          Bert

  3. Bert,
    Sitting on 2 low % loans myself – 1.9 and 1.5 for mine and hers. I have contemplated selling mine, as I rarely use it, but alas there are certain things work and home wise I keep it around for. We are just running the payments the way you are, the bare minimum with exception that I tack on a few extra bucks towards mine. Both loans will finish approximately at the same time in 2020 – which will free up a huge cash flow. However, any large windfalls and my car loan will likely get chopped down to size – mainly for the piece of mind.
    Cars really do suck,
    – Gremlin

    • Gremlin,

      It sucks, you’re right. How nice would that be to become a 1 car family? Nothing would make me happier right now. But unfortunately, it isn’t practical. I think you have a rock solid plan here. You can buy some higher yielding dividend stocks in the meantime and enjoy pushing your dividend income forward.

      Bert

  4. I never bought a car on a loan, ever. The only debt we have is our mortgage.

    But I really can relate to the happiness of finishing a loan. I started my own business at the start of the financial crisis and tried to plow through. Didn’t make it and ended up with an 18k debt. Spend a few years fixing that and man that feeling I got when I made the last payment!

    It was like a weight had lifted from my shoulders…

    • Mr. Robot,

      Wow. My car loan feels like a 5 pound weight compared to the weight you had lifted off your shoulders. I”m sorry to hear about your business, but I”m glad it is all behind you now and you have moved on from it! Thanks for sharing your story.

      Bert

    • Mike,

      Thank you so much! 1 car down, 1 more car and a house to go. I can’t wait to pay off the rest of my debt. I’m jealous and wish I could not own a car like you. It is not a cheap asset, that’s for sure. Plus it depreciates rather than appreciates. Where is the fun in that?

      Bert

  5. Bert,

    Congrats on the payoff. That is a great cash flow after the car loan payoff. You are right to celebrate.

    Can waybto payoff my loan of 328$ soon, since will need to get a new car after we close on our next house.

    Cheers
    Dividend Pursuit

    • Thanks Dividend Pursuit! I was in that boat last year as well, as we purchased a new house and a car for my wife at the same time. It was crazy seeing our cash flow decrease just like that.

      Bert

  6. Congratulations! Looks like you are getting closer to being debt free every day!

    I can tell you when we paid the last of our debts off (the mortgage) it opened up a wide world of potential. It really was only then that I could see the path to FI open up.

    Keep it up!

  7. I like having no debt and with valuations where they are, paying down the mortgage isn’t a terrible idea. You can always split it 50/50 too!

    Congrats on the paying off the car. I’m almost done with mine and it’s so close I can taste it. I threw $500 and $750 at it the last two months and am down to about $3k left now. I think it’s 8 regular payments or so but I want to get it done faster now that it’s so close. I may just keep throwing some extra cash at it every month just to get it off the books!

    • TITM,

      Fair point. There isn’t anything wrong with an even split I guess! You are on the doorstep of knocking off your loan as well. Do you think you’ll just make the payment to get it over with?

      Bert

  8. Congrats on paying off the auto loan. That is quite a bit of extra cash to do whatever you want with!!!

    Remember this

    “You miss 100% of the shots you don’t take. – Wayne Gretzky”
    – Michael Scott

    • haha thanks Money Hungry. That was one of my favorite bits from the show. It is so funny re-watching that show now that I am in an office setting. You have to do these little things to keep yourself entertained and going on a day to day basis.

      Bert

  9. The first thing I hope you do is to find a mirror, look at the guy in there and swear you’ll never ever borrow money to buy a depreciating asset again, and that you’ll also never consider leasing a vehicle, ever. After that, yeah invest it somewhere and reserve part of it for your next car, which hopefully will be used and paid for with cash. People that succeed financially don’t buy cars with borrowed money. They just don’t.

    • haha I like it Steve! I can’t promise I won’t borrow again, but I’ll sure as heck be smarter about it next time and choose the right blend of affordable/reliable. I think there is a time and place for borrowing and it can make sense in the right situation with the right interest rate. But I understand your point, especially for expensive cars when there are other options readily available.

      Bert

  10. Congrats on paying your car off. I am in a similar boat as you. I owe just under 4k on my 2012 Mazda 3. Exactly 12 payments at my accelerated $350 a month. At 2.9%, I will let it pay itself off I think. I like time in the market’s idea of a 50/50 split. Also, possibly putting $263 towards your wife’s car, with an extra $100 a month in new stock purchases. In my case, (unfortunately), I drive about 130 miles a day round trip for work. I hope to make that a much shorter trip soon, but at that rate, I would have to put my money away for a new car in a few years. The good news is that most people I know with a Mazda 3 say it lasts almost forever. Also, my student loans are my most hated loans. One is 3.9%, but 2 of my parent plus loans are 7.9 and 8.4%. Question for those reading. I hate the thought, but would you sell about $2500 of Intel stock (yield of about 2.3%) to payoff a 8.4% student loan? I’m curious what people think?
    Keep pushing towards FI!!
    Thanks!
    Jake

    • Jake,

      Thank you very much! Not a bad idea with the 50/50 split and I’ll have to crunch some numbers and see if it makes sense. HOly cow, that is a long daily commute for work. I’m assuming they don’t pay you mileage either since it is a part of your regular commute. Have you thought about refinancing your student loans before and consolidating your debt into a much lower interest rate? Lanny just wrote about it with his brother in a different article. If you would like, check out the link for Earnest in the article. IF you want another student loan refinancing option besides Earnest, I know some people at a company that could help out as well. But I would check that option, to see if you cal lower the overall interest rate. Then I would tackle all of the debt once you have a reduced rate. If you can’t refinance, I would work to pay it off, but Im not sure I would sell stock to do it.

      Bert

      • I’ve looked at consolidation, but most banks will not let me because two of the three loans are Parent Plus loans, so they are technically not in my name. But they are definitely my loans. And you are correct. Since it is my normal commute, no mileage pay 🙁
        I will continue to look around for refinance options. Maybe I can come across a good one. i looked into Earnest, but will have to dig in deeper once I have a little time available.
        Thanks
        Jake

  11. Nice! I’m in that club. It’s a great feeling for sure. However, I now find myself even more protective of my car since I paid it off. That’s irrational, right?

    I used the extra capital each month to invest in my blog. =P

    Congrats,
    Andrew

    • Thanks Andrew! I’m glad I am a fellow club member with you. That’s not irrational. Now that you have paid it off, you don’t want anything to happen to it that would potentially force you to get a new car and deal with those pesky payments once again. That’s a great investment by the way 🙂

      Bert

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