truck loan

1955 950 · Mar 1, 2015

I have a 2013 2500hd and owe about $14000 left on it. The loan is 2.2% interest would you keep paying on it or just rite a check and be done with. I still owe about 10 years on my mortgage. What would be the smartest thing to do? I have about a year worth in emergency fund.

BruceS · Mar 1, 2015

IMHO, if you are thinking of dipping into your emergency fund to pay off the truck, I personally would not do it. You don't want to whittle down your savings. Yes, monthly payments can be annoying, but that is a super nnalert, and as you pay off the loan you'll be paying way more principal than interest. Just my .02. It's really your call.

FBH44 · Mar 1, 2015

That's a very cheap loan, congrats, if you are making anything north of 2% on your money, don't pay off that loan.

JD Seller · Mar 1, 2015

I would not worry about the shorter term truck loan and I would pay on your home loan instead. The term on the house normally would be longer so you would generate more interest savings on the home over the pickup.

Also it is a better feeling to have your home paid for. If some thing where to happen you would have your home paid for. You can always drive a cheaper car/truck if your housing is taken care of.

Beatles65 · Mar 1, 2015

If you have the money to pay it off then I would. Look at it this way. If you pay off that $14,000 then you can take the extra money you would have otherwise put into the loan every month and put that extra towards your house payment. Thus paying off your house faster. I think you would be farther ahead doing that.

Allan in NE · Mar 1, 2015

I'd be for trading for a Power Stroke. :>)

Allan

brentb · Mar 1, 2015

If you can pay it off and still have 3-6 months of an emergency fund then I would do it today.

notjustair · Mar 1, 2015

The home payments are a deduction on taxes but vehicle payments are not (at least for me). I would get that vehicle payed off. I do it and then if something comes up and I need quick cash my credit union just has me borrow against the paid off pickup. You will also need to start planning on paying taxes for the property when it gets paid off as right now they come out of escrow. Clearly you will have the extra cash because you aren't making payments, but it is something to remember in a couple of lumps a year.

Chuck (CA) · Mar 1, 2015

If you have the money in an IRA or some other sort of retirement account, you will be taxed on that as income if you pull it out to pay off those debts.

DoubleR · Mar 1, 2015

I would pay the truck off as soon as you can. I would hold a few grand back for your e-fund though. The house you can still deduct on your taxes.
You can always refinance the truck in an emergency.

Pappy · Mar 1, 2015

Don't you mean to say the interest paid on your home loan is deductable, but not the payment to the principal.

ss55 · Mar 1, 2015

Pay off the highest interest loans first.

The mortgage interest can be deducted from your federal income tax and depending on the state maybe state income tax. Check with your tax accountant to calculate your actual tax savings at your marginal tax rate. I.E. if your mortgage rate is 5 percent and your marginal tax rate is 20 percent, the tax savings would be about (5 percent x .20) = 1% reduction, reducing the the equivalent mortgage rate from 5 to 4 percent. Again, check with your accountant to be certain.

JD Seller · Mar 1, 2015

1955 950: I guess I am swimming against most of the other posters. To me it is not just about interest rates and saving. The bigger question is about RISK!! You should always look to minimize risk. So I would rather pay off the house and then work on the truck. As having your home paid off greatly lowers the RISK over paying the truck off.

You can drive anything it does not have to be financed at all. A $500 beater will get you from point a to point b.

Having your home paid for enables you to weather problems much easier. YOU have to have a house to live in and housing is harder/costlier than vehicles.

So the tax rates, deductions and interest rates all take the back seat to security or lack of risk. Losing your place to live is rougher than losing a vehicle.

caterpillar guy · Mar 2, 2015

I agree with
JD as if things go south you still have a place to live. It is still pretty cold for that tent.
If you use the truck for farm use the truck is still deductible for the interest if you are needing that. You can drive a cheaper vehicle.
I hate payments. I do understand the whole interest and depreciation thing.

Traditional Farmer · Mar 2, 2015

Great advice!!I would never ever under any circumstance have a lien against the place I live
unless it was absolutely the last resort.Those folks taking out Home Equity loans are crazy as far as I'm concerned.

LAA · Mar 2, 2015

Generally speaking, if a person is employed, it is better to pay debts with current cash flow and keep your savings intact. If you have set a goal to become debt free in a certain time period then starting with the debts which carry the smallest balances is a good way to make some quick progress and keep you motivated, unless there is some high interest balance that needs to be dealt with first. If you double up on the truck and when it is paid off apply that money to the mortgage you will see rapid progress more or less painlessly.

LAA · Mar 2, 2015

JD, the poster never indicated in any way that he was in
danger of losing anything. I am surprised that you share the
reasoning of many farmers with government backed loans who
have the unfortunate attitude that defaulting on a debt is no big
deal. The plan should always be to pay all legitimate debts, I
never bought anything in my life without the full intention and
commitment to follow through and pay for it.

JD Seller · Mar 2, 2015

LAA I am not in any way telling him to not pay his loans. I also take offence in you saying I don't think defaulting on his loan is not big thing.

Also how many farmers have a government back loan???? Not very darn many anymore other than fellows just starting out.

There are a heck of a LOT more government back home loans , FHA and VA, than all the farm loans put together.

Here is new flash for you!!! I have ZERO loans and never have had a government backed anything!!!! None of my sons or daughter have any GOVERNMENT back loans either.

I also TELL every single one of them to pay off their homes FIRST!!! A nice fancy truck or car is not very warm to live in.

The difference in the amount of interest saved on a short term loan like a car or truck is peanuts compared to what the interest is on a longer term home loan.

As for him being in danger of losing anything. I have never met anyone that "PLANNED" on being hurt or disabled. His income is not in anyway guaranteed. HE could also be laid off and then not be able to find work that pays as well as his current one.

All I am saying is PAY OFF YOUR HOME FIRST!!! Then double up on the truck loan and it will soon be paid off.

Blackhole49 · Mar 2, 2015

I'm with Seller. Put the money toward the house. The truck is a simple interest loan, the house is a graduated interest loan with most of the interest at the beginning. You will save more actual dollars paying the house off early. If you don't believe, look at your amortization and do the math. As far as the house interest being deductible, I can't see giving away a dollar to save 17 cents.

NoNewParts · Mar 2, 2015

most of us here are older and have been thru tough times.
Necessities first, luxuries second.
That 14k will make mortgage payments, pay taxes, buy food, heat, etc, if you lose your income.
(and yes, you can lose your job in an instant in todays world, good worker, lots of time in....meaningless if a beancounter draws a line thru your position/factory/company)
Once the 14k is gone..it's gone. Lose your job and there will be no 're-finance' or loan. no job, no loan.
(and in tough times, selling the truck won't work, everybody is in the same boat...)

I always pay my bills, but if the bottom drops out of your life,
worst case is they take the truck. Much too cold up here to risk no house.....or food.
(even if you 'own' your house....the taxman is merciless)

ps, if you decide to pay off the truck, read the fine print or talk to the bank first. Some will give your credit a strike if you pay off years early. You technically broke the agreement.

dhermesc · Mar 2, 2015

You can sleep in your truck, but you can't drive your house to work.

LAA · Mar 2, 2015

I did not say you had gov backed loans, I said that line of thinking was the same as many who do. I have known plenty of people who have defaulted on land etc. and many of them had portions of their loans "forgiven" which resulted in them keeping the land and paying half or less of the original price they financed. I find it hard to believe you haven't run across several of the same yourself.

W_B · Mar 2, 2015

(quoted from post at 12:28:00 03/02/15) Great advice!!I would never ever under any circumstance have a lien against the place I live
unless it was absolutely the last resort.Those folks taking out Home Equity loans are crazy as far as I'm concerned.

Unless you need the money right away and don't have another cheap source of financing. We've bought several things that were killer deals using a home equity loan and they were paid off in a short time. Even with the interest being deductible we didn't want that debt hanging on. It's a tool, like any other financial tool... used wisely it can be a great help.

W_B · Mar 2, 2015

(quoted from post at 02:21:55 03/02/15) That's a very cheap loan, congrats, if you are making anything north of 2% on your money, don't pay off that loan.

That's the best advice I've seen in this thread. If you can invest the money for more than your interest rate then don't pay either of the house or truck. Right now I'm putting $$ in my 401k and it is returning much more than my mortgage interest rate. If times get hard I can use that to make the payments and not loose anything. If it stays good I'm well ahead of the game. Remember, that house paid off is not going to pay the taxes and insurance on it, put food on your table, pay for the heat coming out of the furnace and lighting the light bulbs when all your money tied up in equity in the house and land. You've heard of house rich and cash poor? As we've seen recently housing is not liquid, how much of your wealth can you afford to tied up in something that you can't get it out of or may go down substantially in value AND not be able to sell?

Cas · Mar 2, 2015

LAA I do not you think have any knowledge of farm loans or risk management. I am a small fish surrounded by a lot of big fishes I do business with. Nobody has defaulted on a PCA loan and everbody around here deals with the local banks for their needs.
I think what JD Seller is trying to say is that we might have a financial meltdown. If you bother to read the Federal Reserve Reports. Even just pick a few from the Philly Fed to the Kansas City Fed or even The Dallas Fed. The financial services and banking system is worse than the meltdown of 2007. The thing about a meltdown it that you can not get out your 401k. Their are no buyers. I had this happen to me on 10/19/87 the day the NYSE dropped 700 points. Had several sell orders in...three days later they all came back not executed. Have a few mutual funds now in a 401k, but money in them in is sure as hell not grocery money. I think you should start reading more on the history and future of the 401k.
The guy asking about what to do with $10,000 has a one year reserve fund. Above the 8 months recommended. When the retrenchment or collapse comes you need home more than the pickup. Naturally if things do not get to bad, this guy will payoff the pickup. But, if gets real bad the pickup might not be worth much. This is I think what JD Seller means about risk management. Why should not everyone have a plan on risk. Every large corporation has a portfolio of risk management. JD Seller has been around a long time and I do not think he accomplished that by playing with the flavor of the period all the time. Amen

Cas · Mar 2, 2015

JD Seller, One correction thanks to Gov Cuomo when he was the head of HUD and others setting up no payment mortages earlier on; The debacle of Freddy Mac and Fanny May. The Federal government in directly owns 90% of all home mortgages.

LAA · Mar 2, 2015

I don't think you have a clue to what I was referring to and I doubt if you can read JD Sellers mind either. I simply stated that in my opinion it is a good plan to pay down debt with cash flow when able to do so, as far as I know this is the strategy employed by the vast majority of businessmen, including farmers, worldwide. It certainly worked well for me. As far as the economy tanking, there is no doubt that the US and world economies are weak, the glut of oil proved that months ago, but, we can hide in the closet forever expecting the bottom to fall out. Life waits for no one.

muleboss · Mar 2, 2015

(quoted from post at 22:13:33 03/01/15) If you have the money to pay it off then I would. Look at it this way. If you pay off that $14,000 then you can take the extra money you would have otherwise put into the loan every month and put that extra towards your house payment. Thus paying off your house faster. I think you would be farther ahead doing that.

I fully agree with this thinking. Pay the small loan first, then your next small loan. You will be suprised how quick you can get out of debt.

JBDyer · Mar 2, 2015

I am 46 year old self employed carpenter, farmer, cabinet maker. I paid off my house about this time last year and let me testify it was a great feeling to finally get it paid off. Took about 17 years, we paid off 3 years early. At one point though in about 2009 I was almost a year behind on my payment, but had a lender that worked with me and the wife. I don't ever want to be in that situation again. I would hate to be sleeping in my pickup. Johnny

Hobo,NC · Mar 2, 2015

(quoted from post at 05:09:25 03/02/15) I have a 2013 2500hd and owe about $14000 left on it. The loan is 2.2% interest would you keep paying on it or just rite a check and be done with. I still owe about 10 years on my mortgage. What would be the smartest thing to do? I have about a year worth in emergency fund.

If you were locked up with Andy Dufresne he would have the answer...

I can tell'ya having your property paid for takes a load off your back... If thangs get real bad the repo man can come get my new tractor/truck if thangs get better you can buy new toys and figger out how to wright them off...

Its nice to to own you home it takes the monkey off your back...
Independence has it value don't get rapped up in tax issues with loans on toys...

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