Pay off car loan?

[SeeYaLater]

I've had a car loan on a 2006 car for just over a year now and still owe about $20K @ 4.9% for 5-Years total (4 remaining).

I was thinking of paying the car off to save the interest, but the money is currently getting me just over 5% at ING. Based on my calculations, my $20K would make me more money at 5% at ING over 4 years then if I paid off the car.

Am I correct?

SeeYaLater

[LuxLiving]

Would paying it off wipe out your savings?

Where do you stand financially - do you have an emergency fund fully funded?

401-K up and getting fully matched? Does making the payment prevent you from fully funding an IRA each year?

The answer kind of DEPENDS.

What's the purpose of the 20K you already have?

Think what I'm saying is that folks here will likely need more info to help you. Yes keeping the 20K back would in the scenario you describe net you more money but very very little.

What kind of credit history do you have? Is it a relatively new history and a series of you making timely payments helpful to that end?

Are you looking to buy a house in the near future and might need the 20K as part of a down payment??

More info please.

[sweeps]

Are you talking about an ING CD? Because ING's savings account only pays 4.5%.

Anyway your interest is subject to taxes, so you're probably not going to come out ahead by keeping the money at ING.

Lux also brings up good points about emergency funds, retirement savings, etc. You have to look beyond the raw numbers.

[brig2221]

I think one of the previous posters asked the perfect question. How much of a dent would you put into your savings by paying this car off early? If the answer is that it would completely drain your savings, then I would definitely recommend paying on the car as currently setup on your loan. You aren't paying a high interest rate, and you will probably at least break even given the interest rate your money is earning currently.

Paying off debt is great and is to be commended, but I certainly wouldn't do it all at once if it required me to completely drain my savings.

[JanH]

We had a thread before about paying car loans. I didn't know that prepaying was not the same as paying down the principal on the car. I would have been paying the same in interest, just paying it off sooner. Any extra toward the car loan would need to be designated on principal only.

[SeeYaLater]

I didnt think about all the other variables such as the tax on the ING CDs. Paying off the $20K would not be an issue financially as we have plenty saved up. We would have paid cash for the cash but wanted to build some credit off it first.

I'm leaning towards paying it off and be left with only one loan (mortgage).

SeeYaLAter

[bjl584]

Something to consider, a car is a depreciative asset. Even if you can get a better return on your money elsewhere, it still may be to your benefit to pay the car off early depending how long it takes, and how much it will depreciate by the time you pay the loan off. Just something to consider.