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Should I pay off my 2.75% APR car loan before the first payment if I have the money?
"I bought a minivan for $22,000 and got a 2.75% APR from USAA. I thought I'd be able to pay it off in a year, though the term is for 36 months.
That said, I came into some money right after I signed the loan. Should I pay off the loan before the first payment or hold on to the loan to build credit?"
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“With a rate of 2.75%, you might actually want to consider keeping the loan for two reasons.
First, you can build your credit score over the 36 months (or even 24 months if you pay it off early).
Second, you can probably invest that money for more than 2.75%. Think about it like this: instead of paying the $22,000 lump sum, you can take that money and invest it in a mutual fund or exchange-traded fund (ETF). Both of these tend to generate around a 5% annual return or more.
By investing the money, you may actually come out on top. Not only will this translate to an interest-free loan, but you’ll also make a bit of cash on top of it.”
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- Gregory R.
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