A question by Kathryn : I’m planning out my budget, and one of the big questions is paying down debt vs. retirement fund. Obviously, there are a lot of factors to consider. But basically it comes down to = is the earnings on savings more than the interest rate of my car loan? Which led me to the question: what is considered a low interest rate? Specifically for a car loan. And I already know that it depends on factors like the economy, my credit history, new or used car etc. So please don’t answer with that. So a low rate is… 5%? 3%? Prime + 1.5??
Answers
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“Pay down your debt. You will sleep better at night. After the debt is gone, and you have an emergency fund, you can put money into a retirement fund, if you wish. 3% or less on a car loan is low; but 5% is decent. That is lower than what you would usually get at a bank or credit union..”
daddy
“In the UK if you want to save the banks will give you .5% to 3% yes the dot is in the right place but if you borrow for a car lets say then that will be 7% and if you want a short loan that can be 3000%.”
Geoff
“You are not thinking about this correctly. Additions to a retirement fund, if tax advantaged, are limited. Once you do not maximize what you contribute this year, you lose it. Forever. So, to the extent that you can, pay into your 401K or IRA. If you are talking about a regular savings account, pay off your debt asap because interest rates on savings are so low, you might as well get debt free..”
Madman