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Is it better to pay off my car, or keep paying on it?

M

Mackie2k

Senior member
Hey,

Seems to me, paying 5.75% on a car at $8000 is kinda stupid when I have the cash in the bank to pay it off only making 3.5%.

Any other reasons not to?

Thoughts?

Mackie
 
The only reason not to pay it off with cash is if you can make more money on your cash than you are paying in interest for the car.

In this economy, it's doubtful, so i'd just pay the cash if you have it.

edit: assuming this isn't like your life savings or something. You should always have a chunk of cash on hand in case you lose your job or have to pay a deductable or something like that...
 
pay it off, it is unlikely you can do better with investment.

is it me or do I hear an echo in here?
 
If that's your only liquidible savings and you have a home or other liabilities you need to tend to, you may want to set aside a couple months worth of bills for a rainy day fund.

While I have the cash on hand to pay off my car loan of a similar balance, I am keeping it in savings in the event I lose my job or have an emergency come up. I can pay my bills in cash for a good 4 months before hitting up credit cards or dipping into retirement accounts.
 
I'm actually in the same boat. I have $ 9000 left on my car and my rate is around 8.5 I think (not sure have to double check). Since my interest is higher I am thinking I should pay it off already.
 
Originally posted by: nkgreen
Originally posted by: shinerburke
Don't pay it off, buy another.

If you don't you hate America.
Click to expand...

Fixed.
Click to expand...

if you own a home, take out a second mortgage for $8000.
pay off the car.
write off the interest from the 2nd mortgage yearly.
 
I say just keep making the payments. How much was the car when you bought it? How long have you been making payments? You probably have already paid the largest chunk of the interest already and you also need to compare 5.75% vs. a compounding 3.5%.
 
Originally posted by: jorken
I say just keep making the payments. How much was the car when you bought it? How long have you been making payments? You probably have already paid the largest chunk of the interest already and you also need to compare 5.75% vs. a compounding 3.5%.
Click to expand...

Car was $17000, we have about 2 years left on it now. (5 year loan).

I have plenty of spare cash, I've been saving for a house downpayment, but with the economy so crappy and job market iffy, I wanted to save most of that for OH SHIT fund.

I may just end up making double payments this year on it.....but paying it off would just feel good.
 
Pay it off. Unless it is Tax deductible interest (Mortgage) then this is a simple answer, pay off your highest interests first, so assuming your Credit Cards are paid, Car payment sounds like its next. For a Mortgage it becomes a much more complicated answer due to tax deductions and the home price issue of late.
 
Originally posted by: Mackie2k
Originally posted by: jorken
I say just keep making the payments. How much was the car when you bought it? How long have you been making payments? You probably have already paid the largest chunk of the interest already and you also need to compare 5.75% vs. a compounding 3.5%.
Click to expand...

Car was $17000, we have about 2 years left on it now. (5 year loan).

I have plenty of spare cash, I've been saving for a house downpayment, but with the economy so crappy and job market iffy, I wanted to save most of that for OH SHIT fund.

I may just end up making double payments this year on it.....but paying it off would just feel good.
Click to expand...

ok, well based on that...

If you were to keep making min payments for two more years off a 17000 loan you'll pay ~$415.00 in interest according to your standard amortization table.

If you keep your 8k in your 3.5% savings account after two years you'll have 8,569.80... assuming the rate stays the same.

I say keep making min payments, keep the 8k in the bank and end up making 150 some dollars.

Do the math yourself. Look up an amortization chart and fill out the details, see how accurate it is compared to what you've already paid.

Then find a compounding interest calculator and do the same for what you'd save.
 
depends how much 8k is relative to the rest of your savings. if you still have a sizable chunk for a rainy day, it makes sense to get rid of the debt.
 
Originally posted by: jorken
Originally posted by: Mackie2k
Originally posted by: jorken
I say just keep making the payments. How much was the car when you bought it? How long have you been making payments? You probably have already paid the largest chunk of the interest already and you also need to compare 5.75% vs. a compounding 3.5%.
Click to expand...

Car was $17000, we have about 2 years left on it now. (5 year loan).

I have plenty of spare cash, I've been saving for a house downpayment, but with the economy so crappy and job market iffy, I wanted to save most of that for OH SHIT fund.

I may just end up making double payments this year on it.....but paying it off would just feel good.
Click to expand...

ok, well based on that...

If you were to keep making min payments for two more years off a 17000 loan you'll pay ~$415.00 in interest according to your standard amortization table.

If you keep your 8k in your 3.5% savings account after two years you'll have 8,569.80... assuming the rate stays the same.

I say keep making min payments, keep the 8k in the bank and end up making 150 some dollars.

Do the math yourself. Look up an amortization chart and fill out the details, see how accurate it is compared to what you've already paid.

Then find a compounding interest calculator and do the same for what you'd save.
Click to expand...

One thing, I plan on putting the $340 a month back into my savings....so I'd make some money back off paying off the loan as the balance in my savings account would be going up and collecting interest.

Is that right?

 
Adding 340/mnth over 2 years @ 3.5% you'd end up with $8439.64 when it's all said and done.

So you'd be breaking just about even if you're diligent enough not to spend any of it.
 
Originally posted by: jorken
Adding 340/mnth over 2 years @ 3.5% you'd end up with $8439.64 when it's all said and done.

So you'd be breaking just about even if you're diligent enough not to spend any of it.
Click to expand...

Thanks Jorken, I appreciate the help.

Mackie
 
Originally posted by: Mackie2k
Originally posted by: jorken
Adding 340/mnth over 2 years @ 3.5% you'd end up with $8439.64 when it's all said and done.

So you'd be breaking just about even if you're diligent enough not to spend any of it.
Click to expand...

Thanks Jorken, I appreciate the help.

Mackie
Click to expand...

Anything thing you pay in addition to your monthly payment earns a 5.75% return, just keep a buffer in the bank and send what you can.
 
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