Pay it off or Save the Cash

lucasrd · #1 (**permalink**) 11-28-2006, 07:10 AM

I have a question: I currently have 48 months left on my car with an $8800 balance on the loan.

I have a stockpile of cash saved up (nearly 35K cash and 65K stocks + what ever is in my 401K).

I was thinking about paying off my car but started running some numbers...interested to see what everyone here thinks...

my monthly payment is $204/mo X 48 mos = $9792 in payments

if I put the 8800 in a 4 year CD at ING @ 5%...the maturity value in 4 years will be: $10,696.46

so by saving my $$ in a CD i'd come out $900 ahead??? does that make sense?

tinapbeana · #2 (**permalink**) 11-28-2006, 07:19 AM

true, BUT you're paying $992 more than the car is actually worth, so it's really a wash don't you think?

now if you pay off the car note now and save the $204 per month car payment for 4 years in an account at 5% compounding daily you'll have $10,840.54 (plus access to the cash should you absolutely need it).

you'll only pay $8800 for the car, not $9792, saving you $992. PLUS you're 'car payments' that you could stash into savings would turn into $10,840.54 rather than just $9792, thus generating an additional $1048.54.

bjl584 · #3 (**permalink**) 11-28-2006, 07:24 AM

Depends on your individual situation. Do you plan on making any other purchases in the near future that you will either need cash for or will need to get rid of your current car loan before purchasing? If so, maybe it would be best to pay off the loan so you have more cash on hand for future purchases. If not, it may be best to hang onto the loan and just continue to pay each month. You could do a combination of the two and pay extra toward the loan to pay it off faster, but it all comes down to your personal situation and plans. Personally, I would probably pay off the car just cause I don't like debt. That's just me though.

Broken Arrow · #4 (**permalink**) 11-28-2006, 07:29 AM

Don't forget that you need to pay capital gains tax on the interest you make in your CDs....

Paying it off now also increases your residual income for investments, as Tina has indicated....

It'd also be one less debt to keep track of, how ever inconsequential it may be....

8800 also would not severely impact your cash reserve (and thus still cushion you against emergencies) while at the same time, not having to deal with a car loan would make it slightly easier for you to manage your affairs in case you do run into a financial emergency....

So, if it was me, I'd just go ahead a pay it off.

poundwise · #5 (**permalink**) 11-28-2006, 07:31 AM

Quote:

Originally Posted by Broken Arrow

Don't forget that you need to pay capital gains tax on the interest you make in your CDs....

Paying it off now also increases your residual income for investments, as Tina has indicated....

It'd also be one less debt to keep track of, how ever inconsequential it may be....

8800 also would not severely impact your cash reserve (and thus still cushion you against emergencies) while at the same time, not having to deal with a car loan would make it slightly easier for you to manage your affairs in case you do run into a financial emergency....

So, if it was me, I'd just go ahead a pay it off.

Ditto.

lucasrd · #6 (**permalink**) 11-28-2006, 08:04 AM

Sounds good...thanks for the input

Ima saver · #7 (**permalink**) 12-01-2006, 04:06 PM

I would pay it off too!

Aleta · #8 (**permalink**) 12-01-2006, 04:14 PM

I agree and like others have said here the interest on the money you make on your cash will be taxed. I don't think you can deduct your car loan. I would pay it off and just put the $204. a month in the bank as if it was a payment. It's only going to help your bottom line and it will be one less bill to deal with now. I agree pay it off.

veronak · #9 (**permalink**) 12-01-2006, 08:13 PM

Pay it off, you wll he surprised at how much more you can save

PRICEPLUS · #10 (**permalink**) 12-01-2006, 08:27 PM

Out of debt, out of danger!

LivingAlmostLarge · #11 (**permalink**) 12-02-2006, 11:14 AM

Depends on you. DH had his first car loan in the US because he didn't have credit being a foreigner. He had the cash but decided $5k @0% for 3 years for $150/month would be doable. Turns out it worked out better for us. We used that extra $5k to buy a condo and well the returns were phenomenal. It also helped bails us out of scrapes when things were tight.

Till today we still use 0% financing when it's available if we really want the item. We have cash, but I just pay it off monthly until it's done. Like today I'm buying a new laptop and whatever financing is available at best buy I'll use. I'm being lazy because I have the cash, but it's just as easy to use a CC.

But this is a HUGE disclaimer. A lot of people don't have the discipline to do this. CC are not toys, they are tools. And so are 0% loans. I've never paid interest on a CC, late fee, or anything. Thus I don't spend money I don't ever have. We don't live above our means, it's just easier for us this way. I track spending carefully and on the board of what you spent money on today, I can tell you we don't spend money everyday. We're not budgeters, we just pay ourselves first and the rest falls into line.

instantinfo4you · #12 (**permalink**) 12-05-2006, 12:47 PM

I would suggest paying it off now. Then like others have suggested, put that extra monthly payments into your investments. You really should focus on the long term here, and not just on today. This is what leaves so many people broke with no retirement. Living for today is a trick that is taught to us by the merchants and the creditors, and they are very good at making us believe what they want us too.