Author Topic: Options for Eliminating Car Loan  (Read 371 times)

inferno

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Options for Eliminating Car Loan
« on: October 18, 2019, 01:21:15 AM »
I financed a new Hyundai Elantra in 2017. Original loan was about $14k at 5.79% for 72 months. I currently owe $8.4k with 40 payments left. Car has 30k miles on it and KBB is $12.5k.

I currently have a little over $40k in checking/savings.

My question: is it better to pay off the loan in full and keep the car for the rest of its working life, or sell it to buy a different used car outright?

Thanks,

inferno
« Last Edit: October 18, 2019, 01:29:30 AM by inferno »

ctuser1

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Re: Options for Eliminating Car Loan
« Reply #1 on: October 18, 2019, 07:41:33 AM »
Paying off loan and keeping car are two separate decisions.

You should take them completely independently with one not influencing the other.

If you *do* sell the car, you will of course need to pay off the loan with the proceeds. But that is about the only scenario there is any connection between the two events.

FireAnt

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Re: Options for Eliminating Car Loan
« Reply #2 on: October 18, 2019, 09:17:06 AM »
If I were in that situation, I would purchase the car outright and drive it to the ground. But the needs for a car in my situation may vary than your car needs so it's hard to be specific to you and your situation.

Sibley

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Re: Options for Eliminating Car Loan
« Reply #3 on: October 18, 2019, 09:34:17 AM »
Yes, pay off the loan. You have the cash. And why do you have $40k in your checking? You're losing money to inflation. A savings account would be better, though still terrible.

As for the car - does it meet your needs? If yes, keep it and run it into the ground.

inferno

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Re: Options for Eliminating Car Loan
« Reply #4 on: October 18, 2019, 10:17:52 AM »
Thanks for the replies. I'm just digging into the blog and forum so still have a lot to learn, but found I do have some innate mustachian tendencies.

Breaking it down into two decisions:

1. Should I pay off the loan?  -Yes. I maybe need to do a more thorough case study to decide how fast to pay it off because it seems this debt would fall under Investment Order priority 7 (https://forum.mrmoneymustache.com/investor-alley/investment-order/), as the interest rate on the loan is less than 5% above the current 10-year Treasure note yield. I'm currently working on priority 3, fully funding my HSA.

2. Should I keep the car? -At this point I think this is also a 'Yes'. At the rate I currently drive I expect to get at least 14 more years out of the car. Since I already made the mistake of buying a new car and eating the initial depreciation, a quick search isn't turning up any cars that I'd get a similar lifespan from for less than I can sell the current car for. This supports the replies to run it into the ground. Again a more thorough search may change my mind.

40k is combined checking and savings, with the majority being online savings making ~2%. I'm a little more liquid than I'd like to be right now because I'm preparing for some window replacement and masonry repair for my house.

Looks like I have some homework to do, but would still welcome others' opinions.

six-car-habit

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Re: Options for Eliminating Car Loan
« Reply #5 on: October 18, 2019, 10:32:56 AM »
 Pay $5,000 this week.  You'll have $3400 left. 
Cash flow payments of $500 a month for 7 months until its paid off. Nov-Dec-Jan-Feb-March-April-May. minimal interest paid.
 Just in time for good weather and replacing house windows.
 Keep the car for a decade. Not worth it to buy a ~$4K, older car, with much more miles on it.

SwordGuy

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Re: Options for Eliminating Car Loan
« Reply #6 on: October 18, 2019, 11:40:00 AM »
I would pay off the car loan.

At this point, you've already eaten the new car "bonus" depreciation.

If the car is meeting your needs, I would keep it and drive it until it's trade-in value is less than $400.  :)

Consider it a lesson learned and move on.

If you were having trouble making ends meet every month or drowning in debt, I would give different advice.   Then it would be a debt emergency and more extreme measures would be in order.