Do you pay extra car payments?

doodles44 · #1 (**permalink**) 12-28-2006, 09:15 AM

If you have a car loan, do you make extra payments on it, and if so, how much? What are the benefits of paying off your car early versus putting the money in your emergency fund?

I'm trying to determine the best thing to do in my situation (I owe $6,300 on my 2002 car at 4.39 percent and I'm earning 4.4% in ING, not including other funds in CDs making higher rates). In a couple of months when my personal debt is gone, I was planning to make extra payments on my car to retire it early. What would you do?

disneysteve · #2 (**permalink**) 12-28-2006, 10:21 AM

I would be in no hurry to make extra payments on a loan at 4.39% because I know my money could earn a lot more elsewhere. Just a high yield account (other than ING since they aren't that high) can earn 5.2% or so. And if you don't have an adequate EF, I would say that is a lot more important than paying off the car early.

creditcardfree · #3 (**permalink**) 12-28-2006, 10:49 AM

I agree with Steve on the EF being more important than paying the car off early.

I tend not to look at what more my money could be earning vs what I'm paying since I've already maxed out our retirement and have a good EF. I don't have a lot of extra after that to invest...so I probably would then pay off a car early...even at 4.39%. It is still interest you are paying and I would feel freedom without the car payment. After the car is paid off...I would then put extra money aside for savings.

That's just me and my opinion.

instantinfo4you · #4 (**permalink**) 12-28-2006, 06:43 PM

I would pay off the car early. Why not? Who cares if you can get a 1% better return on something else. Pay it off, then take that monthly payment and invest it. That will get you better results than only making minimum monthly payments and investing a little bit. Plus even at only 4% interest, Paying it off early could save you hundreds, if not thousands of dollars.

disneysteve · #5 (**permalink**) 12-28-2006, 07:34 PM

Quote:

Originally Posted by instantinfo4you

Pay it off, then take that monthly payment and invest it. That will get you better results than only making minimum monthly payments and investing a little bit.

I'm curious why you would say that.

Quote:

Plus even at only 4% interest, Paying it off early could save you hundreds, if not thousands of dollars.

Since the total loan is only for $6,300, the savings of paying it off early probably wouldn't be that dramatic. Also, the OP did ask about putting the money into an EF instead. If OP doesn't have an adequate EF, I still think it makes more sense to put the money there instead of prepaying the loan. JMHO.

instantinfo4you · #6 (**permalink**) 12-28-2006, 07:36 PM

True. I guess it all depends on personal preference. I would personally pay the debt off as fast as possible, just to have one less debt under my belt.

puck36 · #7 (**permalink**) 12-28-2006, 09:36 PM

Quote:

Originally Posted by instantinfo4you

True. I guess it all depends on personal preference. I would personally pay the debt off as fast as possible, just to have one less debt under my belt.

Not only having one less debt under my belt but more money to save or invest. If I didn't pay my car off 1 1/2 years early I would be still paying it on now and would not have my EF fully funded and a down payment started. Just think if I took my car payment of $250 a month for 40 years at 8% I would have $839,343.

disneysteve · #8 (**permalink**) 12-29-2006, 06:47 AM

Quote:

Originally Posted by puck36

Just think if I took my car payment of $250 a month for 40 years at 8% I would have $839,343.

Actually, what you should do after paying off your car, is to continue to save that payment amount so that when it is time for your next car, you don't need to take out a loan. Unless you can get really cheap financing, it generally doesn't make sense to borrow money to buy a depreciating asset like a car.

fairy74 · #9 (**permalink**) 12-29-2006, 10:32 AM

DH & I currently do not have a car payment, but in the past I did make extra payments just to get it paid off and get it off my mind....the less money owed the better for me at least

Ima saver · #10 (**permalink**) 12-29-2006, 10:58 AM

I tried sending in extra money on a car loan that I had. They only showed me as paid ahead, not extra on the principal. So, I save in my car fund to pay off the car early, in one lump sum. Then I will take the payment I was making and continue making it into my car fund.

LuxLiving · #11 (**permalink**) 12-31-2006, 07:17 AM

Beef up the EFund until you can cover any short-term crisis such as a refrigerator going out or unexpected car repair or having to fly out to a funeral or some such. I'd get at least $2000.00 put back for such stuff.

Okay I'll say my little mantra again - Past, Present, Future.

I'd get anything that I'd HAVE TO charge covered w/the $2000.00 then I'd take whatever extra money I had and split it - say if you have an extra $250.00 that you could play with - I'd take $80 of that and CONTINUE to put it monthly to the EFund (future) and $150 to the car paydown (past) and I'd take $20 smackos and take me'darling out to eat at a 'beanery near me (present). But hey, that's just us.

This multi-faceted approach is how I worked getting us out of CC and car loan payment hell.

Listen to DisneySteve - he knows what he's talking about.

disneysteve · #12 (**permalink**) 12-31-2006, 08:23 AM

Quote:

Originally Posted by LuxLiving

Listen to DisneySteve - he knows what he's talking about.

Thank you! Now can you please tell that to my daughter.

Fizgig · #13 (**permalink**) 12-31-2006, 10:39 AM

I paid off my car early, about two years ago. Once the balance got around $2000 I just wanted it gone. I agree with LuxLiving to have a little EF then speed up your payments. I'd want to pay off the car.

Financially, it really doesn't make much of a difference in the long run. I think this one falls into the whatever helps you sleep at night category.

instantinfo4you · #14 (**permalink**) 12-31-2006, 11:22 AM

So, it all boils down to personal preference.

LivingAlmostLarge · #15 (**permalink**) 01-01-2007, 05:06 PM

We had a car loan fo $150 for 3 years at 0%. We didn't pay it off early. Worked out better for us.

tabbycat31 · #16 (**permalink**) 01-01-2007, 09:37 PM

I havent had a car payment since 2002.. HOwever when I did I always put extra towards it. I paid off a 3 year car loan in 2.5 years

sakigt · #17 (**permalink**) 01-02-2007, 07:08 AM

Id pay off the car early. If something happened that would be one less monthly expense to worry about.

smartatmoney · #18 (**permalink**) 01-03-2007, 10:05 AM

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.

Hot dog · #19 (**permalink**) 01-03-2007, 02:42 PM

I owe about $5,500 on my car and am paying only about 5-$10 extra rounding it up. I put any extra in the bank making 5.4% The car loan is only 3.9 I am hoping for an offer from a credit card that is like 1.99% for the life of the loan and then I will put the car on the credit card and continue to pay the same amount. However, I already have money out on the card at 0% for 6 months so I am guessing I won't get another offer til that one is done.

Amanda W · #20 (**permalink**) 01-03-2007, 10:45 PM

We no longer have car payments, but when we did we always paid extra. Our goal was to pay it off as soon as possible.