mortgage vs car loan vs invest extra cash?
Pay off your car loan. Here is why: As you mentioned, the interest on your home mortgage is tax deductible. This may not completely offset the difference in interest between your two loans, but it makes them much closer.  Once your car debt is gone, you have eliminated a payment from your life. Now, here's the trick: take the money that you had been paying on your car debt, and set it aside for your next car. When the time comes to replace your car, you'll be able to pay cash for your car, which has several advantages. "First off, the ""mortgage interest is tax deductible"" argument is a red herring.  What ""tax deductible"" sounds like it means is ""if I pay $100 on X, I can pay $100 less on my taxes"".  If that were true, you're still not saving any money overall, so it doesn't help you any in the immediate term, and it's actually a bad idea long-term because that mortgage interest compounds, but you don't pay compound interest on taxes. But that's not what it actually means.  What it actually means is that you can deduct some percentage of that $100, (usually not all of it,) from your gross income, (not from the final amount of tax you pay,) which reduces your top-line ""income subject to taxation.""  Unless you're just barely over the line of a tax bracket, spending money on something ""tax deductible"" is rarely a net gain. Having gotten that out of the way, pay down the mortgage first.  It's a very simple matter of numbers: Anything you pay on a long-term debt is money you would have paid anyway, but it eliminates interest on that payment (and all compoundings thereof) from the equation for the entire duration of the loan.  So--ignoring for the moment the possibility of extreme situations like default and bank failure--you can consider it to be essentially a guaranteed, risk-free investment that will pay you dividends equal to the rate of interest on the loan, for the entire duration of the loan. The mortgage is 3.9%, presumably for 30 years.  The car loan is 1.9% for a lot less than that.  Not sure how long; let's just pull a number out of a hat and say ""5 years."" If you were given the option to invest at a guaranteed 3.9% for 30 years, or a guaranteed 1.9% for 5 years, which would you choose?  It's a no-brainer when you look at it that way." A point that hasn't been mentioned is whether paying down the mortgage sooner will get you out of unnecessary additional costs, such as PMI or a lender's requirement that you carry flood insurance on the outstanding mortgage balance, rather than the actual value/replacement cost of the structures.  (My personal bugbear:  house worth about $100K, while the bare land could be sold for about twice that, so I'm paying about 50% extra for flood insurance.)  May not apply to your loan-from-parents situation, but in the general case it should be considered. FWIW, in your situation I'd probably invest the money. Without knowing actual numbers it's tough to say.  Personally, I would pay off the car then, going forward, use the money that would have been paid on your car note toward your mortgage.  I always think of things in the worst possible scenario.  It's easier, and faster, to repossess a car than to foreclose on real estate.  Also, in an emergency situation, depleting your fund for your car loan and your mortgage would be significantly more detrimental than only paying a mortgage with a car owned outright.  Fewer obligations means fewer things to draw down your funds in an emergency. Whether the tax deductability of the mortgage interest outweighs the lower rate on your car loan will depend on a lot of factors that haven't been shared.  I think it's safe to assume with only 1% of separation the real difference isn't significant.  I think when determining which credit cards to pay off, choosing the one with the highest rate is smart.  But that's not the situation you're in. If you don't have foreclosure concerns I'd still pay off the car then start investing. Since you've already maxed out your 401k and your IRA, if you wanted to invest more-- then it would either be in a brokerage account or a 529 (if you have kids/ intend on going back to school). As to investing versus paying off your loans -- the interest on them are small enough that it will depend on your preference.  If you need the cash flow for investment purposes (ie if you are going to buy an investment property) then I would pay off the car loan first -- otherwise I would invest the money.   Since you've already expressed that you wouldn't be too interested in paying the mortgage off early, I've left that off the table (I would prioritize car loan over mortgage for the cash flow reason)  If you do open a brokerage account -- make sure you are minimizing your taxes by putting the 'right' type of assets in a tax advantaged account. It depends on your tax rate. Multiply your marginal rate (including state, if applicable) by your 3.1% to figure out how much you are saving through the deduction, then subtract that from the 3.1% to get the effective rate on the mortgage. For example, if you are in the 28% bracket with no state tax impact from the mortgage, your effective rate on the mortgage is 2.232%. This also assumes you'd still itemize deductions without the mortgage, otherwise, the effective deduction is less. Others have pointed out more behavioral reasons for wanting to pay off the car first, but from a purely financial impact, this is the way to analyze it. This is also your risk-free rate to compare additional investing to (after taking into account taxes on investments).
"I think the risk involved with the ""fund gaining a larger rate of return"" is probably priced in. Why would the bank take the risk on you with a car loan when it could put it in the same fund you're talking about and make more money?" Any way you look at it, this is a terrible idea. Cars lose value.  They are a disposable item that gets used up.  The more expensive the car, the more value they lose. If you spend $100,000 on a new car, in four years it will be worth less than $50,000.*  That is a lot of money to lose in four years. In addition to the loss of value, you will need to buy insurance, which, for a $100,000 car, is incredible. If your heart is set on this kind of car, you should definitely save up the cash and wait to buy the car.  Do not get a loan.  Here is why: Your plan has you saving $1,300 a month ($16,000 a year) for 6.5 years before you will be able to buy this car.  That is a lot of money for a long range goal.  If you faithfully save this money that long, and at the end of the 6.5 years you still want this car, it is your money to spend as you want.  You will have had a long time to reconsider your course of action, but you will have sacrificed for a long time, and you will have the money to lose.  However, you may find out a year into this process that you are spending too much money saving for this car, and reconsider. If, instead, you take out a loan for this car, then by the time you decide the car was too much of a stretch financially, it will be too late.  You will be upside down on the loan, and it will cost you thousands to sell the car. So go ahead and start saving.  If you haven't given up before you reach your goal, you may find that in 6.5 years when it is time to write that check, you will look back at the sacrifices you have made and decide that you don't want to simply blow that money on a car. Consider a different goal.  If you invest this $1300 a month and achieve 8% growth, you will be a millionaire in 23 years. * You don't need to take my word for it.  Look at the car you are interested in, go to kbb.com, select the 2012 version of the car, and look up the private sale value.  You'll most likely see a price that is about half of what a new one costs. I would say that, for the most part, money should not be invested in the stock market or real estate.  Mostly this money should be kept in savings: I feel like your emergency fund is light.  You do not indicate what your expenses are per month, but unless you can live off of 1K/month, that is pretty low.  I would bump that to about 15K, but that really depends upon your expenses. You may want to go higher when you consider your real estate investments.  What happens if a water heater needs replacement?  (41K left) EDIT:  As stated you could reduce your expenses, in an emergency, to 2K.  At the bare minimum your emergency fund should be 12K.  I'd still be likely to have more as you don't have any money in sinking funds or designated savings and the real estate leaves you a bit exposed.  In your shoes, I'd have 12K as a general emergency fund.  Another 5K in a car fund (I don't mind driving a 5,000 car), 5k in a real estate/home repair fund, and save about 400 per month for yearly insurance and tax costs.  Your first point is incorrect, you do have debt in the form of a car lease.  That car needs to be replaced, and you might want to upgrade the other car.  How much?  Perhaps spend 12K on each and sell the existing car for 2K?  (19K left). Congratulations on attempting to bootstrap a software company.  What kind of cash do you anticipate needing?  How about keeping 10K designated for that?  (9K left) Assuming that medical school will run you about 50K per year for 4 years how do you propose to pay for it?  Assuming that you put away 4K per month for 24 months and have 9K, you will come up about 95K short assuming some interests in your favor.  The time frame is too short to invest it, so you are stuck with crappy bank rates. If you want the new car, pay cash for it. Here's why: By paying cash for the car, you immediately save $2,500 off the price of the car. That is not insignificant, it's 8.3% off.  By paying cash, you'll never be upside down on the car, and you can sell the car anytime you want.  You said that all you need to do is beat the 0.9% interest rate with your investment to come out ahead. That doesn't take into account the discount you would have gotten by paying cash. $30,000 invested for 5 years at 1.6% (rough estimate) would get you $2,500 (the discount), so the rate you need to beat to come out ahead is actually 2.5%. Still doable, but it is much less of a sure thing on a 5 year investment, and much less worth the trouble.  New cars are an expensive luxury. If you are wealthy enough, a new car certainly can be appropriate for you. However, if you don't like the idea of paying $30k in cash all at once, that is a strong indication that perhaps the new car is a luxury you aren't in a position to buy at this time. Borrowing the money and paying for it over time makes it psychologically easier to over spend on transportation. "Thanks for your question. Definitely pay the car down as soon as possible (reasoning to follow). In fact, I would go even further and recommend the following: Why? 1) Make money risk free - the key here is RISK FREE. By paying down the loan now, you can avoid paying interest on the additional amount paid toward principal risk free. Imagine this scenario: if you walked into a bank and they said, ""If you give us $100, we'll give you $103 back today"", would you do it? That is exactly what you get to do by not paying interest on the remaining loan principal. 2) The spread you might make by investing is not as large as you may think. Let's assume that by investing, you can make a market return of 10%. However, these are future cash flows, so let's discount this for inflation to a ""real"" 8% return. Then let's assume that after fees and taxes this would be a 7% real after-tax return. You also have to remember that this money is at risk in the market and may not get this return in some years. Assuming that your friend's average tax rate on earned income is 25%, this means that he'd need to earn $400 pre-tax to pay the after-tax payment of $300. So this is a 4% risk-free return after tax compared to a 7% average after tax return from the market, but one where the return is at risk. The equivalent after-tax risk-free return from the market (think T-Bills) is much lower than 7%. You are also reducing risk by paying the car loan off first in a few other ways, which is a great way to increase peace of mind. First, since cars decline in value over time, you are minimizing the possibility that you will eventually end up ""under water"" on the loan, where the loan balance is greater than the value of the car. This also gives you more flexibility in terms of being able to sell the car at any point if desired. Additionally, if the car breaks down and must be replaced, you would not need to continue making payments on the old loan, of if your friend loses his job, he would own the car outright and would not need to make payments. Finally, ideally you would only be investing in the market when you intend to leave the money there for 5+ years. Otherwise, you might need to pull money out of the market at a bad time. Remember, annual market returns vary quite a bit, but over 5-10 year periods, they are much more stable. Unfortunately, most people don't keep cars 5-10+ years, so you are likely to need the money back for another car more frequently than this. If you are pulling money out of the market every 5-10 years, you are more likely to need to pull money out at a bad time. 3) Killing off the ""buy now, pay later"" mindset will result in long-term financial benefits. Stop paying interest on things that go down in value. Save up and buy them outright, and invest the extra money into things that generate income/dividends. This is a good long-term habit to have. People also tend to be more prudent when considering the total cost of a purchase rather than just the monthly payment because it ""feels"" like more money when you buy outright. As a gut check for whether this is a good idea, here is an example that Dave Ramsey likes to use: Suppose that your friend did not have the emergency fund, and also did not have the car loan and owned the car outright. In that case, would your friend take out a title  loan on the car in order to have an emergency fund? I think that a lot of people would say no, which may be a good indicator that it is wise to reduce the emergency fund in order to wipe out the debt, rather than maintaining both." My god man, where do you live that is too expensive to live on your own and  7K isn't enough for emergency cash? Anyway, with your age and income I would be more worried about a long-term sustainable lifestyle. In other words, a job that nets you more than $26K/year. Someday you may want to have a wife and kids and that income sure as hell wont pay for their college.   That was life advice, now for financial: I've always been a believer that if someone is not a savvy investor, their priorities before investments should be paying off debt. If you had a lot of capital or knew your way around investment vehicles and applicable returns then I would be telling you something different. But in your case, pay off that car first giving yourself more money to invest in the long-run. Do you think your 403b will earn more than the mortgage interest rate?  If so, then mortgage seems the way to go. Conservative investment strategies might not earn much more than a 3-4% mortgage, and if you're paying 5-6% it's more likely you'll be earning less than the mortgage. From another point of view, though, I would probably take a loan anyway just from a security standpoint - you have more risk if you put a third of your retirement savings into one purchase directly, whereas if you do a 10-15 year loan, you'll have more of a cushion.  Also, if you don't outlive the mortgage, you'll have had use of more of your retirement income than otherwise - though I do wonder if it puts you at some risk if you have significant medical bills (which might require you to liquidate your 403b but wouldn't require you to sell your house, so paying it off has some upside). Also, as @chili555 notes in comments, you should consider the taxation of your 403(b) income.  If you pull it out in one lump sum, some of it may be taxed at a higher rate than if you pulled it out more slowly over time, which will easily overwhelm any interest rate differences.  This assumes it's not a Roth 403(b) account; if it is Roth then it doesn't matter. With a lot excess cash you eventually have two goals: Since interest on cash bank deposits does not exceed inflation and you have currency risk, you may want to get into other asset classes. Options that might be, but not limited to are: "Making extra principal payments will reduce the term of your loan. I wouldn't sign up for a biweekly schedule, just do it yourself so you have more flexibility. A simple spreadsheet will allow you to play ""What if?"" and make it clear that extra principal payments are most effective early in the term of the loan. My wife and I paid off our home in less than 10 years with this approach. Some will say that the opportunity costs of not using that money for something else outweighs the gains. I would say that not having a mortgage has a positive impact on your cash flow and your assets (you own the home), which combine to create more opportunity, not less. That being said, It should be obvious that paying off higher interest debt first is the priority, (Paying off a zero percent interest car loan early is just foolish)" Basically you have 4 options: Use your cash to pay off the student loans. Put your cash in an interest-bearing savings account. Invest your cash, for example in the stock market. Spend your cash on fun stuff you want right now. The more you can avoid #4 the better it will be for you in the long term. But you're apparently wise enough that that wasn't included as an option in your question. To decide between 1, 2, and 3, the key questions are:  What interest are you paying on the loan versus what return could you get on savings or investment?  How much risk are you willing to take? How much cash do you need to keep on hand for unexpected expenses? What are the tax implications? Basically, if you are paying 2% interest on a loan, and you can get 3% interest on a savings account, then it makes sense to put the cash in a savings account rather than pay off the loan. You'll make more on the interest from the savings account than you'll pay on interest on the loan. If the best return you can get on a savings account is less than 2%, then you are better off to pay off the loan. However, you probably want to keep some cash reserve in case your car breaks down or you have a sudden large medical bill, etc. How much cash you keep depends on your lifestyle and how much risk you are comfortable with. I don't know what country you live in. At least here in the U.S., a savings account is extremely safe: even the bank goes bankrupt your money should be insured. You can probably get a much better return on your money by investing in the stock market, but then your returns are not guaranteed. You may even lose money. Personally I don't have a savings account. I put all my savings into fairly safe stocks, because savings accounts around here tend to pay about 1%, which is hardly worth even bothering. You also should consider tax implications. If you're a new grad maybe your income is low enough that your tax rates are low and this is a minor factor. But if you are in, say, a 25% marginal tax bracket, then the effective interest rate on the student loan would be more like 1.5%. That is, if you pay $20 in interest, the government will then take 25% of that off your taxes, so it's the equivalent of paying $15 in interest. Similarly a place to put your money that gives non-taxable interest -- like municipal bonds -- gives a better real rate of return than something with the same nominal rate but where the interest is taxable. Full payment is always better than auto-loan if you are prudent with finances. I.E if you take a loan, you are factoring the EMI hence your savings will remain as is. However if you manage well, you can buy the car with cash and at the same time put aside the notional EMI as savings and investments. The other factor to consider is what return your cash is giving. If this more than auto-loan interest rate post taxes, you should opt for loan. For example if auto-loan is 10% and you are getting a return of 15% after taxes on investment then loan is better. Company Car lease depends on terms. More often you get break on taxes on the EMI component. But you have to buy at the end of lease period and re-register the car in your name, so there is additional cost. Some companies give lease at very favourable rates. Plus if you leave the job lease has to be broken and it becomes more expensive. If you decide you need the extra money, you can always go refinance and get more cash out.  At the end of the day, though, if you pay off your house sooner you can invest more of your income sooner; that's just a matter of discipline. "What could a small guy with $100 do to make himself not poor? The first priority is an emergency fund. One of the largest expenses of poor people are short-term loans for emergencies. Being able to avoid those will likely be more lucrative than an S&P investment. Remember, just like a loan, if you use your emergency fund, you'll need to refill it. Be smart, and pay yourself 10% interest when you do. It's still less than you'd pay for a payday loan, and yet it means that after every emergency you're better prepared for the next event. To get an idea for how much you'd need: you probably own a car. How much would you spend, if you suddenly had to replace it? That should be money you have available. If you think ""must"" buy a new car, better have that much available. If you can live with a clunker, you're still going to need a few K.  Having said that, the next goal after the emergency fund should be savings for the infrequent large purchases. The emergency fund if for the case where your car unexpectedly gets totaled; the saving is for the regular replacement. Again, the point here is to avoid an expensive loan.  Paying down a mortgage is not that important. Mortgage loans are cheaper than  car loans, and much cheaper than payday loans. Still, it would be nice if your house is paid when you retire. But here chances are that stocks are a better investment than real estate, even if it's the real estate you live in." Cash price is $22,500. Financed, it's the same thing (0% interest) but you pay a $1500 fee. 1500/22500 = 6.6%. Basically the APR for your loan is 1.1% per year but you are paying it all upfront. Opportunity cost: If you take the $22,500 you plan to pay for the car and invested it, could you earn more than the $1500 interest on the car loan? According to google, as of today you can get 1 year CD @ 1.25% so yes. It's likely that interest rates will be going up in medium term so you can potentially earn even more.  Insurance cost: If you finance you'll have to get comprehensive insurance which could be costly. However, if you are planning to get it anyway (it's a brand new car after all), that's a wash. Which brings me to my main point: Why do you have $90k in a savings account? Even if you are planning to buy a house you should have that money invested in liquid assets earning you interest.  Conclusion: Take the cheap money while it's available. You never know when interest rates will go up again. "This page lays down the requirements for an ""unincorporated association"" to pay tax (i.e. any group that's not a registered entity). You pay tax is you make money from: it looks like you don't do any of those, so you don't need to file for taxes. There is another exemption that you don't have to file if it is likely that you would owe less than a hundred pounds taxes, which would also probably apply to you. There are many thousands of clubs and societies in the UK that don't need to register for tax purposes, so you are far from alone. It is probably worth creating an actual club (""Captain Insanity Server Club"") and keeping records of donations and expenses for the server. There isn't any need to legally incorporate or anything like that, though you might try having a separate bank account for it if you can get a free one, so that if the tax authorities ever audit you personally you can show them that the donations you received weren't income to you."