Should I pay off my car loan early?

[Gettingthere2014]

I'm looking for advice on paying off my car loan

Current loan balance is $14k
Monthly pymt is $450 to be paid off by 12/2016. Apr is .9% (orig loan amount $26k)
I can pay it off by decenber of this year. Or should I keep that money in the bank at .75% interest?

[bjl584]

Math says to pay it off early. But, there is a little more to it than that. Do you have an EF? Do you have other debts? Do you have any major purchases planned in the near future? We'll need more info to give a good answer.

[mholl95]

Hmmmm...what's the purpose of the money in the savings account? If you have credit cards or other debt with higher rates, I would be more inclined to pay those off first. But need a bit more info to point you in the right direction.

Cheers
Michael

[Gettingthere2014]

Thanks for the responses.

We have a year of living expenses in the emergency fund. No major upcoming expesnses.
By the end of the year I will also have saved enough to pay off the car. Just not sure if we should use that money to pay it off or keep it in the bank to earn interest.

[autoxer]

Thanks for the responses.

We have a year of living expenses in the emergency fund. No major upcoming expesnses.
By the end of the year I will also have saved enough to pay off the car. Just not sure if we should use that money to pay it off or keep it in the bank to earn interest.

Your money can 'earn' .9% by paying the loan, instead of earning .75% by putting it into the savings account.

But we aren't exactly talking about a lot of money.

• $14,000 in savings @ .75% would earn $105 in a year.
• $14,000 in debt @ .90% would cost $126 per year.

So if you paid off the loan in one fell swoop with money from your savings, then you would get ahead by $21 this year. With such a large emergency fund, you don't need to carry this debt. I would pay it off just to simplify cash flow, so you have one less payment to worry about.

The fact that you have such a large emergency fund and are carrying this low interest debt, gives me the impression that you have a very low risk tolerance. Do you invest $$$? It is easier to justify carrying debt if the alternative is an investment that is appreciating at a higher rate.

[mholl95]

Well, if your goal is to simply be debt free then I could see paying off the car. Nothing wrong with that at all. But if your retirement horizon is say 15 or more years away and you're not on pace to reach your retirement money goal, I'd probably invest the money. Even if you ease that money into diversified instruments, it's bound to give you a much higher return than .9% over the long term.

Cheers,
Michael