Best option for my car loan, need advice!

[Zummbot]

Hello Mustachians,

This is my first post here on the forum, so hello! I recently discovered Mr. Money Mustache and have been spending the past month inhaling all the past content on the blog. I am now a dedicated Mustachian, and am taking action based on what I've been reading. I do have a car and I do have a car loan ( I know, I know! ). The question is what I should do about it.

I bought a used 2012 Toyota Yaris last year. I put $1000 down, the loan is for 66 months @ 2.49%. The total amount I will pay all said and done is $14011.90. I make monthly payments of $197.15. It's got about 46,000 miles on it. Very manageable, and a very good reliable used car that gets great gas mileage. This is my only debt, and I currently have $35k in my savings account (I know, I know! I'm going to put those employees to work for me very soon). Seeing as how debt is an emergency, and I want to rid myself of this debt, how should I go about it? I would be most happy getting rid of this car and buying one for cash off craigslist for $3k. I live 3 miles from work and plan on biking from here on out, but will need a car for light travel, probably around 7k miles a year going forward. Should I:

A) Keep the car and invest the cash I have that could be used to pay it off. Higher returns from investment income is a better use of the money?

B) Pay it off completely, resell on craigslist (it's worth about $10k now according to Mint, but I probably couldn't get that for it on CL) and buy a cheaper CL car for cash. Eat the inevitable loss of a few k.

C) Super-secret elder Mustachian option that I'm not even aware of and would be way better than A or B.

Thanks in advance!

[coffeelover]

I don't have financial advice really, but I came on here to say that we also own a Yaris. I bought it used in 2008 with 5 thousand miles. It's now paid off and I LOVE THIS CAR!

It is unfortunate though that my husband uses it for his commute to work. I get the minivan. Don't know if we will convert to bikes anytime soon. Husband can't, due to dangerous roads on the way to work.

I would advise you to try and keep the car because I feel the car is worth it in the gas savings alone.
Pay it off though. 

[johnintaiwan]

I am very confused. Is it a lease or a loan that you have? It sounds like a car loan in which you will own the car outright at the end of the term.

[Zummbot]

I am very confused. Is it a lease or a loan that you have? It sounds like a car loan in which you will own the car outright at the end of the term.

Sorry, it is a loan, not a lease. I used the wrong term. Fixed my original post.

[juuustin]

I am very confused. Is it a lease or a loan that you have? It sounds like a car loan in which you will own the car outright at the end of the term.

Sorry, it is a loan, not a lease. I used the wrong term. Fixed my original post.

After paying it off, I don't see the point of selling it, taking a loss, and then buying a cheaper car.  You will own the car outright.. and anything you can get for $3K on CL will be way less reliable than a 2012 Toyota.

[HairyUpperLip]

Without knowing anything else about your situation I'd say keep it as well. The payments are low and it should be a good car.

A) Keep the car and invest the cash I have that could be used to pay it off. Higher returns from investment income is a better use of the money?

[Forcus]

Truly MMM would be to get rid of the car / loan, ride your bike an use zipcar / etc. May or may not be an option in your area.
Still in the MMM realm would be to get rid of the car / loan, get a "good used" car for 3-4k (which is hard to find), ride your bike whenever possible.

My opinion based on owning more than 75 cars (not at once) is that trying to economize by buying a 3-4k car is a fools errand for most people. If you have no intention of doing mild to moderate car maintenance (and by moderate, I mean, timing belt changes, brakes, A/C, even a clutch), then maintaining the average 3-4k car is going to cost way more than making a payment on a car that requires little to no maintenance other than oil changes, tires, and sundry items. The Yaris is an immenently simple vehicle, with simple, proven, reliable parts. Unlikely to puke up something expensive even up to 150k miles. If you have a full life where worrying if your car is going to start is a non-starter, I wouldn't get rid of the Yaris unless you found a truly viable alternative (much cheaper even after tax / title / license, much better MPG, which I would guess even a Prius wouldn't get over a Yaris, etc.).

Assuming you keep the Yaris, the second question is the loan. From a pure economic perspective, if your investments can make more than 2.49%, it makes sense to not pay off the loan and instead invest the money. From an emotional perspective, if you see debt as a chain around your ankle, it might make sense to pay off your loan. I think it just depends on your personality and goals.