Author Topic: Pay off car loan or not?  (Read 3903 times)

projekt

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Pay off car loan or not?
« on: January 09, 2015, 11:34:03 AM »
So, we have enough in savings to pay off a $21,000 auto loan at 2.9%. I feel like paying it off. But we also have a house at 4.5% and student loans at >5.5%. The student loans will be in subsidized deferment for at least a few months if not a few years. Paying the car loan will free up $430 in cash each month, which could be put against other loans or into savings. Ideas?

MakingSenseofCents

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Re: Pay off car loan or not?
« Reply #1 on: January 09, 2015, 11:37:23 AM »
Hmmm this is tough. I'm usually all about paying off student loans but if they are subsidized and deferred for possible a few years then there's really no reason to rush at that. I would probably pay off the auto loan since it would free up so much cash each month, personally.

Le Barbu

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Re: Pay off car loan or not?
« Reply #2 on: January 09, 2015, 12:04:18 PM »
When % rates are so close, I usualy put lump sum on the loan that can be repaid in full, car in that case. Your cashflow will be a lot better.

Did you considered selling the car afterward and buy a decend car for 5k-10k$ ?

Hurley82

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Re: Pay off car loan or not?
« Reply #3 on: January 09, 2015, 12:11:51 PM »
When % rates are so close, I usualy put lump sum on the loan that can be repaid in full, car in that case. Your cashflow will be a lot better.

Did you considered selling the car afterward and buy a decend car for 5k-10k$ ?

This is what I would do. Assuming you can sell the car for a chunk of change do it and buy something older with low miles and use the savings from the monthly car payment as well as the profit from the sale of the car to pay down more debts. I like to use auto trader to do my car searches. I set the perimeters for exactly what I'm looking for. If your not picky you should find all kinds of examples for sale. For instance set it for $0-7k under 45k miles 4 door 4 cylinder and you'll get all kinds of great options. 

Cassie

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Re: Pay off car loan or not?
« Reply #4 on: January 09, 2015, 12:20:05 PM »
I would pay off the car & then pay the student loans.  If you plan on driving the car into the ground, like it & the mileage is good I don't see any reason to sell it.

CheapskateWife

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Re: Pay off car loan or not?
« Reply #5 on: January 09, 2015, 12:22:53 PM »
+1 on selling the non-tax advantaged debt in the car!  Then take the car payment you were making and send it over to that SL...snowball baby!

RFAAOATB

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Re: Pay off car loan or not?
« Reply #6 on: January 09, 2015, 12:53:55 PM »
Unless you don't have an adequate emergency fund or certainty that your income won't decrease, paying off the car makes less sense in this scenario than either investing all 21k now instead of 430/month or dumping the money into the mortgage.  I would only do it when you have a plan for when the student loans come out of deferment.

eil

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Re: Pay off car loan or not?
« Reply #7 on: January 09, 2015, 01:35:10 PM »
You're going to get a variety of responses here because everyone has a different point of view on this.

Rationally, it makes the most sense to pay down the loan with the highest interest rate. If your student loan is being deferred (and assuming it doesn't accrue interest during this time), then the mortgage is where you should be putting your extra money. Then when the student loan kicks back in, that's what you should pay down most aggressively. Save the low-interest

My own personal preference (I am not always rational) is to pay down the easiest one first, which is probably the car payment. Or even the student loan. Because I hate having multiple sources of debt more than I hate paying a little more in interest.

Others will tell you do none of these and instead invest all surplus cash since the interest rates are lower than what a market index fund generates, on average, per year.

projekt

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Re: Pay off car loan or not?
« Reply #8 on: January 10, 2015, 12:31:09 PM »
Yeah, I don't really believe in investing money that could be used to pay down a debt. The exception is the emergency fund and the money that gets put into tax-advantaged accounts. Thanks for all your input, I think I will pay off the car!


Goldielocks

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Re: Pay off car loan or not?
« Reply #9 on: January 10, 2015, 12:53:16 PM »
I concur with the "snowball" method for you...

Nothing is so motivating, freeing and feel-good worthy as generating up $430 cash flow to put towards the next debt (student loan at >5.5 in this case.)  Home and student loan likely have much lower monthly payments.   

And if feeling good about your financial savvy helps you become a super MMM muscleman, go for it.

Next you will know, you will never let yourself have a car loan again.