i am currently on a 20K commercial car loan about 5% monthly payment $720, 15K reno loan about 5% monthly payment $540. if I have about 100K, should I pay it off or should I invest it to get more than 5% interest? If you were me, What would you do? - Seedly
 

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Asked by Anonymous

Asked on 21 May 2019

i am currently on a 20K commercial car loan about 5% monthly payment $720, 15K reno loan about 5% monthly payment $540. if I have about 100K, should I pay it off or should I invest it to get more than 5% interest? If you were me, What would you do?

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I find that 5% is a bit on the higher side even though I understand that it is pretty easy to find investment that yields above 5% in current market condition.

If I would like to have excess cash in hand, I would invest the amount instead of repaying it but understanding that I might end up in a situation that I earn more, lose some or breakeven. However, I would still have the cash in hand for liquidity.

If the interest rate that you're paying is on the lower end, I would invest definitely.

My current car repayment is on 2.18% interest rate. I got a pretty good package. I took all the money to invest at a 5% rate and I still have 2.82%pa as a buffer.

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Brandan Chen
Brandan Chen, Financial Planner at Manulife Singapore
Level 6. Master
Answered on 21 May 2019

One fundamental concept is that Interest rates are guaranteed but investment returns are not.

Since you mentioned that its a comercial car loan, is the car itself generating sufficient income to cover the loan repayments and car expenses like petrol, ERP, Road Tax, Servicing, parking etc?

Another point is that you have 100k whereas the principal amount for your loans are only S$35,000. This means if you repay all your loans today, and taking into consideration any pre-payment fees, you would still have more than 60k to start your investment journey.

Rather than asking the community what would we do, it is more important to understand your own risk appetite because at the end of the day, TALK IS CHEAP. Another factor to consider is your investment know-how.

If you are somewhat growth oriented and has very good know-how in terms of investing, perhaps utilising the 100k for investments could turn out better for you, since you need your investments to return more than 5% for this to make sense.

However, I would tend to err on the more cautious side since the loan interests aint low. Hence, I would suggest that you consider paying off your loans first before investing.

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