Invest (unregistered account) or early pay car loan?

It would really depend on what exactly you invest in your RRSP account and how much of your loan is, but from a purely math basis, yes investing probably makes the most sense considering the interest you are paying is barely inflation and your investments likely would beat that.

That being said, if the balance is large (I presume no) or you have trouble paying off bills (since you have funds to pay it off early) or perhaps the psychological benefit of paying it off earlier (perhaps the only good reason) outweighs this return, you may want to consider paying it off earlier.

I would invest personally and perhaps use the increased tax return to pay down the debt

Sorry, what do you mean by ATSV?

Thank you xgbsSS, when I mentioned "ATSV" I actually meant TFSA.

I have edited both the title and the post to correct that.

If I was to invest, I meant into an unregistered account, as both RRSP (mutual funds) and TFSA (Dividend growth ETF) are on auto-pilot for now.

Cheers.

Pay off the car loan. 2.49% guaranteed after tax return can’t be touched right now. If you have so much as a hint of fixed income in your investments you are blowing and sucking at the same time and paying a bunch of fees to do so(interest rate difference).

All these wannabe stock jockeys who think future returns will be the same as the recent past are in for a rude awakening. Stock returns offer a risk premium above the risk free rate, not some canned historical return. Expected future returns are lower when the starting point are nearly non existent risk free returns(and in some places negative risk free returns). The current interest rate isn’t particularly relevant when deciding if it makes sense to use leverage but many don’t understand this. I had a junior bank advisor yesterday tell me I’d be crazy to buy a house in cash and should never put more than 20% down and invest the difference in mutual funds. The internet is full of these borrow to invest geniuses. What these folks fail to realize is when interest rates rise it will too late to sell their assets as they will be valued at the new rates(and new expectations), the market is a forward looking mechanism. Many hard lessons coming for those who ignore history.

Take the 2.49%, after tax, risk free return.

I would invest, beating 4.75% in the market long term is easy without taking on too much risk. Also, if you are paying 47.5% effective tax, have maxed out RRSPs and TFSAs, no other debt, and a DB pension plan to rely on for retirement, you can handle a short term downturn in the market.

If you can pay off the car loan, you should pay it off first. After that, if you still want to invest, then borrow to invest. This way your interest will be tax deductible.

S5 wrote: ↑ Pay off the car loan. 2.49% guaranteed after tax return can’t be touched right now. If you have so much as a hint of fixed income in your investments you are blowing and sucking at the same time and paying a bunch of fees to do so(interest rate difference).

All these wannabe stock jockeys who think future returns will be the same as the recent past are in for a rude awakening. Stock returns offer a risk premium above the risk free rate, not some canned historical return. Expected future returns are lower when the starting point are nearly non existent risk free returns(and in some places negative risk free returns). The current interest rate isn’t particularly relevant when deciding if it makes sense to use leverage but many don’t understand this. I had a junior bank advisor yesterday tell me I’d be crazy to buy a house in cash and should never put more than 20% down and invest the difference in mutual funds. The internet is full of these borrow to invest geniuses. What these folks fail to realize is when interest rates rise it will too late to sell their assets as they will be valued at the new rates(and new expectations), the market is a forward looking mechanism. Many hard lessons coming for those who ignore history.

Take the 2.49%, after tax, risk free return.

Take a look @ an andex chart.
Try to find a 10 year period where there was actually a loss. There are very few exceptions of a loss during a 10 year period in US and Canadian market history.



No one says returns are guaranteed. But if you know and accept those risk, and you are willing to invest long term, you give yourself a probable chance of earning a better return then paying off low interest debt.

Investing in an unregistered account makes it a bit more tricky because of the taxes involved. But that gap closes if someone has TFSA room and in the same position.