Do you pay extra car payments?

[shelbylovesmelby]

I don't make extra payments as we can't afford that. But I do try to put on an extra $10 or so & if you make the payment early/earlier you can save on interest I just like to be a month or so ahead in payments just in case we have a bad month

[vishenda]

Hi there, extra payments on your car has several benefits:

1. It's money that is going directly to the principal amount. Your regular payments are being split between principal and interest (for instance if you have a $300 per month payment, $50-100 may be going to interest, if you make an extra payment, then none of it goes to interest)

2. Whatever payment you make beyond your car payment, you won't have to pay interest on that amount of the car. So if you pay off $1000 early, then that's $1000 that you avoided paying interest on.

3. You'll avoid getting into negative equity. In the car business its called being "upside down." Many many people owe more on their vehicle loan than what it is worth to sell or what insurance would pay for a total loss. Making extra payments help you to stay on top of that and avoid that problem as much as possible.

4. You'll be out of debt and will have more flexibility if you want or need to do something different in the future, including trading in your car to something nicer and possibly keep the same payment.

**That's what I would do, but make sure you have a simple interest loan and won't be penalized for paying it off early.**

[instantinfo4you]

I am currently paying almost twice my minimum car payment every month. I hope to pay it off at least 2 years early, and then begin using that money as my accelerator margin to debt freedom. Hopefully once the car is paid off, I will have the snowball effect, and all my bill's will begin to fall as easily if not easier than the car.

[instantinfo4you]

I am currently paying almost twice the minimum payment on my car. I want to pay it off yesterday as I am tired of continuously putting money into the car.

[LuxLiving]

Originally Posted by smartatmoney

I agree that an EF needs to be funded. I prefer a something like 2 months expenses in there and then pounce on debt before funding it higher (like to 4 months).

Please note that thinking that you are better off not paying extra on a car and instead putting that money in a high yield savings account is misguided. One needs to account for taxes. The yield in that account will incur taxes where as the money saved by not paying interest will not.

Yes one needs to account for taxes, I agree. But one also has to account for the dreaded 'emergency' that might not YET be included in your regular budget...freezer fails, dryer caputs, grandma eight states over passes away. If you think the taxes are going to eat up your small interest increase for 1000-5000 in a savings account then keep 1000 in your home safe (which is silly to me) where there is no income earned and no taxes incurred...but DO HAVE some money somewhere that can be used at NO INTEREST charged if you need it for something that you would normally put on a credit card to charge it.

Some of this is financial who-do-voo-do stuff and it is picking at a gnat's eye. Some folks who are very good with money will advise you to use the CC as leverage at this point and go to Granny's funeral on the CC for a month. Okay, I'll buy that IF you have the money to pay it back before interest is charged. If not, then you are already operating on a small margin for error and need CASH available to cover these things UNTIL you can turn your financial life around to being on top of these things before they happen.

Again, YMMV but I've been down on the brink and I know that having CASH around when I needed it for emergencies was the saving grace that helped us turn our financial world back right side up again.

Smartatmoney, have you ever been to the financial point where you didn't know how you were going to put the $260 alternator on the only work car? Lots of folks are down to the wire here and need money for even the smallest of things like a sick child needing a prescription and they're flat broke and no room on the CC. What they need to worry about at that moment is how to get ahold of some CASH to pay the bill.

Get some mini-emergency fund going - then worry about the extra on the car payment THEN worry about the taxes.

My Definitions:

mini-emergency fund (note small letters) - pay for OOOPS that aren't included in the budget YET.

Emergency Fund (capital E., capital F.)- money to cover you should financial disaster strike - lay-off, disability, death of income earner.

[LivingAlmostLarge]

I don't know we never had money to pay off our 0% car loan early. It might have been nice, but finances what they were, we were barely treading water. I'd get a EF so you don't need to go into CC debt.