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On my car loan I owe about $8,200. Monthly principal is $296.00 and interest paid is $35.94. I have 2.5 years until the loan is paid off.
Currently I have $10,000 saved up. It is more or less my emergency cash. Currently I have been thinking of paying the lump sum of my loan off and then pay myself back over the next couple years.
I am really looking for some input as to what would be wise to do in this situation. I was hoping someone could maybe point some things out I have not thought about. Thanks for any help.
NOOOO!!! Don't do it. Not until you truly have 6-12 months living expenses saved up as an emergency fund.
What would you do if you paid off your loan tomorrow and were left with under $2k in savings....how would you survive if you lost your job? Or had a medical or dental emergency that required you to pay your out of pocket deductible??
I'm all for getting out of debt, but a paid for car would do you no good if you lost your job and only had $1800 in cash....guess you could live in your car then?!
While it would be great to pay off any loan, do not sacrifice your emergency fund. It is always important, but now it is critical. Keep savings and when you have a sufficient emergency fund then pay off the loan.
Keep your emergency cash. You never know when you might need it.
But it might not be a bad idea to pay more per month on the principle of the loan if you can do that.
That would save some money in interest over the course of the loan.
Is the loan amount you stated the payoff amount?
The payoff amount might be a lot less than than what you owe over the course of the contract.
Is your $10,000 in savings earning you $36.00 in interest each month? If not, then your savings is actually costing you money.
However, you must also consider the "what if" factor which other posters have mentioned. Having $10k in your savings account, even if it earning meager interest, is one heck of an emergency fund. Will it cover 12 months of living expenses (food, shelter, electricity). Don't include your car payment because, if you lost your job, you could always sell the car.
As mentioned by Robhu keep the money in your savings account. Or, you could even move it over to a money market account if it is paying higher interest. And, as also stated, start paying more on your car payment per month if you can. Get it paid off as quickly as you can.
We just paid our car off, I retired about year ago, and are med insurance cost is killing us, im just 63, so I sold my 1978 Trans AM, got $10,000,this freed up some cash evey month to help pay for our med insurance.
I think your forgetting the entire point of an emergency fund is in case of emergencies, not to sacrafice for 30 bucks annual in interest. Forget you even have that cash until something extreme happens.
True - I had $8,000 in savings and being unemployed for a year - it is gone! Best to keep it and build on it. You can't eat your car if you suddenly have no extra money.
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