Stocks or Car Loan?

Should I use some extra funds to pay off my car loan or invest in the stock market? — K.M., Fort Wayne, Indiana If you have any high-interest debt, such as from credit cards, pay that off first. Otherwise, compare your car debt with your alternatives.

Say your car loan interest rate is 5 percent. If you invest in the stock market, the average annual gain in that over many decades is roughly 10 percent, but that’s just an average and far from certain. The stock market can be volatile, especially over short periods. So consider your risk tolerance and decide whether you’d rather save a definite 5 percent or hope for a 10 percent gain.

It can be worth paying a little in interest while aiming to earn more through stock appreciation. Just make sure you’re investing for the long haul. What’s a leveraged buyout? — L.B., Hendersonville, North Carolina Sometimes referred to as an LBO, a leveraged buyout is when a company is bought out by another entity (or entities), using a lot of debt. Private equity investors are typically involved, borrowing lots of money without using much of their own, and often using the acquiree’s assets as collateral.

The acquired company is generally taken private, no longer trading publicly on the stock market. It’s likely to go public again later, after some changes have been made (such as layoffs, the selling of assets or dividend increases or decreases).

While some LBOs are executed by members of management, others are hostile, executed by outsiders and not welcomed by their targets. Many LBOs don’t end well for the company or its shareholders (there are substantial interest payments due, after all), though the acquirers often do well.