Keep the loan. Buy the market: Don’t prepay—play the spread.
If you can likely earn more than your car’s interest rate after taxes, keep the loan and invest.
The one‑line rule
If your expected after‑tax return is higher than your car loan APR, don’t rush to pay the car off. Invest the cash and make the normal car payments.
Why this makes sense (plain English)
Paying a loan early “earns” you the loan’s APR. That’s it.
Investing lets a bigger pot of money grow. If that growth beats the APR, you end up with more wealth.
Quick example
Assume $25,000 left on the car, 6% APR, 5 years to go. You expect about 17% per year after taxes from your plan.
Pay it off now, then invest the old payment ($483.32/mo): about $45,230 after 5 years.
Keep the loan; invest the $25,000 today: about $54,811 after 5 years.
Difference: roughly +$9,600 by letting the bigger amount compound.
If your return is lower, the edge shrinks. Close to 6%, it’s about even.
Do this
Compare after‑tax return vs. APR. If return > APR by a few points, investing wins.
Keep 3–6 months of cash and kill high‑interest debts first.
Invest the lump sum now; automate the car payment and leave the investment alone.
Don’t do this if
You’ll need the money in < 3 years.
Your APR is high or variable.
Market swings will make you sell.
Bottom line
When your likely after‑tax return beats your car rate, keep the cheap loan and let the bigger number grow. Same car. More wealth.
— Alejos Capital Group
Education only, not advice. Returns are not guaranteed; taxes and behavior matter.