Invest or Pay off truck?

Ok guys so I'm kind of in a unique situation.

As a graduation present my parents have presented me with 2 choices. They will either pay off my truck or give me $6500 that can only be used for investing purposes.

Currently I owe around $10700 on my truck and will be paying until 7/01/17. If my parents pay it off I will pay them $4500 over the next 18 months and then they will cover the rest ($6200) or they will give me $6500 and I will continue to make payments to Toyota. My interest rate with Toyota is 2% and my payments are $254 a month. I have no problem being able to afford these payments and I will have to continue making them for at least 18 months either way.

I figured that over the next 47 months I will end up paying Toyota $12200 for the truck so it would be a loss of $1500 if I keep paying for the truck. However on the other end there is the potential for a loss of money or not making any money. I already figured that if I invest $6500 and it makes 4% I will see a return of $1100 so if it only makes 4% I'm in the hole $400 but I already have money invested and if I let it sit another 5 years that amount increases.

So my question is which option would you guys recommend taking? Option A) pay the truck off, or Option B) take the money and the risk and invest?

 

I'd go with option A and maybe do a small mod or two also

 

Option A since once your truck is paid off you can then save money to mod your truck more

 

I wont be modding my truck for a long time so if your answer is just so I can mod the truck please think around that lol.

 

Option B. Invest, let the money grow + paying off the loan (assuming it is in your name) will build credit, which will help alot down the road. Paying it off now, doesn't gain you anything, so at least that 1500 that you lose, will be an investment in yourself for the next loan that you have to take.

Note: I was given a similar option -- given similar amount on my 21st which I was allowed to use to a down payment or could leave invested. I left it invested and its still there today, worth quite a bit more, and my credit rating is quite good for being a 24 year old.

 

Paying off my truck freed money up for me to pay for college so paying it off is the best winner

 

Answer is very simple for any question like this.

Look at your interest rate. Do you plan on your investment growing more or less than said interest rate?

If Investment Return > Interest Rate, then invest.
If Interest Rate > Investment Return, pay off the loan.

Might as well just lock this thread.

 

It's not that simple.. If you could tell me which stocks would have what rates over the next 4 years you could have all my monies

 

If I was your dad, there would be no such choices. I would make the investment in your name and you can pay for your truck. I assume you can afford the truck payments.

 

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There you have it.

Invest.

 

Couple thoughts OP:

With only $10.7k left @2% and 47 payments remaining, you'll only be paying around $430 interest over those payments (most interest is paid at the beginning of a loan). So if you want to look at this as FV, investing a PV of $6.5k and allowing the value to compound you would only need a rate or return over 1.6% to break even. Let the money sit and earn so you're not paying cap gains... anyone think it weird to discuss finances on a truck forum?

Congrats on graduating!!! Now take the cash and start investing.

 

Pay the truck off, , pay your parents off, then start your own investment. It feels awesome not having to give someone else money. If for some reason you fall on hard times, your parents will be more forgiving than the loan company.

 

We talk about everything else so why not this lol. and how did you get $430? perhaps I'm using the wrong formula.

P=C(1+(r/n))^nt

Or I=prt?

 

10700 x 4 x 0.02 = $856

 

I agree, 2% is a great loan rate. A mutual fund would be a good bet.

 

That reply = pay off the truck.

You can easily invest money in things other than stocks and be all-but guaranteed certain returns. Jumping straight to things about stock market psychics indicates a lack of investment knowledge in the first place. Keep learning and get rid of the debt.

 

Hmm I seem to have done my calculations wrong lol

 

Here's a copy of an amortization table I wrote. It balances to the penny to my home mortgage...

Oops, wrong ling... use this one. https://docs.google.com/spreadsheet/ccc?key=0Ah9R1Ll3ma8NdHlnUl84TG52ZEdQYWQzXzNLTllZb0E&usp=sharing

 

I know you can invest in other things. I have investment knowledge but I also know there arent many things paying very well right now. I'm not looking for a 30 year payout right now.