Fed Financial
Financial help?
I have a personal loan, with a 12% interest rate that I took out with $5000, I have $3765.60 to pay and I pay $113.60/month. I have bonds that are worth $1200 right now - they are earning about 4% interest. Should I let the bonds sit and continue to earn interest or should I take the $1200 and put it towards my loan...which one is financially smarter? TIA
Public Comments
- This is a no brainer--pay off the high interest loan!
- You pay 12% on your personal loan. You earn 4% on the bonds (plus possible capital gain if interest rates dropped further, but not likely significant). If you have the option for prepaying your loan without penalty, then go for it: sell the bonds and prepay part of the loan.
- If you sell the bonds and use the proceeds to reduce your loan, you will be 8% better off on $1200, ie 1200x (0.12- 0.04) = $96 per year,or $8 per month. So hurry up. No use making the lenders richer.
- If the rate on your loan is greater than the rate of your investment, then sell the investment to pay off the loan. Easy.
