Pay off Car Loan Early or Save for Emergency Fund

**kork13** · 03-10-2013, 06:27 AM

it mostly depends on your personal preference. are you comfortable holding the debt for 3-5 years? is your cash flow sufficient such that you can easily handle the debt payments? the interest rates for both your savings and the auto loan are so low and so comparable that the difference is minimal in either case. I'm in a very similar position, and I've chosen to focus on my auto loan while still slowly building my emergency fund. Bottom line, do whatever you're most comfortable with -- there is no wrong answer in this case.

**snafu** · 03-10-2013, 12:46 PM

You've not given many details, How stable is your employment? Where are you in retirement planning? Would you be better served investing in a Bond or Equity fund?

**jpg7n16** · 03-10-2013, 01:23 PM

Agreed with snafu -- those aren't your only two options. It's not like you have to do one or the other.

Other options:
-Retirement investing
-Nonretirement investing

I'd do one/both of those before paying extra on your car loan.

**MoneyLifeandMore** · 03-10-2013, 03:39 PM

1.5% interest isn't horrible but you won't earn that much in a savings account these days. If you have a certain size emergency fund in mind it might make sense to go for that. If you're extremely debt adverse then it might make you more comfortable to pay down the car. The more information you provide the more specific people can be with their answers.

**Wino** · 03-10-2013, 03:45 PM

You already have a borderline emergency fund, and debt. It doesn't matter the debt. I say pay off the debt.

**JustBill** · 03-10-2013, 06:26 PM

Welcome to the boards. Another thing to consider going forward is, the less debt you have to service, the smaller your EF can be because your emergency period needs will take less cash. That enables you to be and stay more invested in income or growth oriented products and have less cash setting on the sideline.

**swapnil** · 03-10-2013, 09:37 PM

I think you should pay off the debt first. Lets take a simple calculation you will add up to your emergency $200 extra bucks every month and contribute just a little part towards your loan interest and principal payment upto 5 years you will have to then wait for 5 long years to get it paid off, but if you pay off your loan as early as 3 years by adding extra bucks payment along with the nominal amount you are paying you may save the remaining amount of the nominal payment you are making towards your loan for two years, and apart from that, once you are debt-free you may not just concentrate on your emergency fund but, you may also think of locking money in some retirement funds too, this may help you have dual benefit for future.

Pay off Car Loan Early or Save for Emergency Fund