Pay off car early or not?

[snoopy5386]

We're currently 18 months into a 60 month car loan (2.9% interest), our first, and debating whether or not to pay it off early by paying a little more than double our payment between May 2013 and September 2014. I was thinking it would be nice to have it paid off by next September because my youngest daughter will be in preschool 5 days a week by then and the preschool bill will be close to $400 a month so it'd be nice to not have the car bill to pay too.

Then I sat down and calculated and we'd only save about $300 in interest by paying it off early vs just banking the extra money we would use as the extra payments.

There is a small chance that we could be moving in the next year and a half which would mean buying a house and a second car, so now I'm trying to decide if it is better to pay off the car early and just not have that debt vs saving the money and using it for possible car/house expenses if they materialize.

If we don't pay off the car early, the car payment and the preschool payment will eat up all of our extra funds and we would be saving next to nothing from Sept - June 2014.

If we do pay off the car early we should still be able to bank a couple hundred bucks a month between now and Sept 2014 and then we'd also be able to bank the car payment $$$ during the Sept-June 2014 school year.

WWYD in this situation?

 

[100AcreWood]

I would pay off the car (we are big Dave Ramsey fans). It feels fantastic to drive around in a paid for car! You'll be amazed how different the budget feels without a car payment.

 

[Princess Disney Mom]

Pay it off. $300 saving in interest is still a savings.

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[HM]

We always pay our cars off early. Do it.

 

[snoopy5386]

I would pay off the car (we are big Dave Ramsey fans). It feels fantastic to drive around in a paid for car! You'll be amazed how different the budget feels without a car payment.

Thanks. This is our first not paid for car! For some reason it always seems easier to pay a bill than pay yourself (savings). I'm sure I'm not the only one who this problem.

To add another complication to the problem, we have enough savings to pay off the car in a lump sum right now. Would you do that vs payments over the next 16 months?

 

[sweetdana]

Words of my CPA when I asked same questions about paying off house.

.. why pay interest if you do not have to.. ? Would you make more on the $$ if you kept them in the bank? Would you likely end up spending on something else? ... then pay it off..

 

[edk35]

Thanks. This is our first not paid for car! For some reason it always seems easier to pay a bill than pay yourself (savings). I'm sure I'm not the only one who this problem.

To add another complication to the problem, we have enough savings to pay off the car in a lump sum right now. Would you do that vs payments over the next 16 months?

Only if it still leaves EMERGENCY MONEY in savings. I would not wipe out my savings.

 

[snoopy5386]

Only if it still leaves EMERGENCY MONEY in savings. I would not wipe out my savings.

It would not, we'd still have plenty left for an emergency. DH's job provides our housing now (and always has) so we've got a large amount in a savings account for when we need to put a down payment on a house "someday".

 

[lvillotta1]

If you have the money in savings pay it off now. I only pay cash for my cars and will not have another car payment.

 

[ronnie2hotty]

personally, I would pay it off early...although I would not use what you already have saved to do so.

I like the idea you have to budget it out. One thing to not forget is that when you pay it off, then you can drop the full coverage off it. This will lower your insurance bill, thus compounding the $300 savings.

 

[trip]

Only if it still leaves EMERGENCY MONEY in savings. I would not wipe out my savings.

It would not, we'd still have plenty left for an emergency. DH's job provides our housing now (and always has) so we've got a large amount in a savings account for when we need to put a down payment on a house "someday".

If you had the money, why did you choose to get a car loan?

 

[ssawka]

If you will still have an emergency fund (at least 6 months) then I would pay it off (I assume that you have already considered moving expenses). There is no reason to stay in debt, unless it would severely jeopardize your cash flow.

 

[Texas Crude]

If you have the money in savings pay it off now. I only pay cash for my cars and will not have another car payment.

+1

Wife and I made our last car payment in December of 2003. Cash from here on out.

 

[Disneylover99]

Pay off your car....it sounds like doubling up on car payments will put you in a forced savings situation and that is a good thing!

 

[hsmamato2]

Only if it still leaves EMERGENCY MONEY in savings. I would not wipe out my savings.

If you have enough to pay off car and leave 3-6 mos. emergency funds...then I'd do it.

 

[sherilaine]

I agree with paying off the car - anytime we buy a newer car, as we never buy a brand new one, we put it on a line of credit and then we pay it off as fast as we can, that way you are really seeing what you owe and not being deceived by the low monthy payment.

I think it is a mental thing as a payment is not seen the same, a person sees $400 a month far differently than $16,800 starring back at them on a line of credit! (if you have 42 payment of $400 each remaining)

I would say pay it off as fast as you can and then you will get used to the funds you might need for preschool, a house, a second car...

Good luck!

 

[DLgal]

Pay it off in a lump sum. Right now, if you can.

That is what we did when we received an unexpected inheritance. Rather than put it in savings, we paid off both cars with it.