ofusball21

I have about 13K left on my tsx auto loan and 30K in savings. I am debating whether to pay off my auto loan in full now or keep stashing away my extra money into my savings account.

My terms are...

Chase Auto Loan
14403 @ 4.9%
4 year term with 6 payments completed for about $331 each.

I currently only earn 3% in my HSBC savings account where I put the majority of my money after I pay my credit card bill. I do not carry a balance on my credit card and do have student loans but the interest is very low on them.

It will knock my "emergency fund" down a great deal but It will also grow a lot faster now because I won't have that $400 payment each month. The only reason I am considering this now is because I have received a pay increase since the time I originally purchased the car which has helped me save a lot the past 6 months.

Also it doesn't make much sense to put money into HSBC when its earning less then the interest I pay on the loan. Any suggestions?

LuvMyTSX

I would pay it off early. Maybe bump it up to $1000 a month or something like that, just so you don't drain your savings quite so much all in one snap.

I know it felt great when I paid mine off early. I had about 2.5 years left on my loan and just didn't feel like paying monthly anymore. Plus, I was in the same situation as you with my interest rate vs. savings rate. My interest rate was 3.9% and my savings rate at the time was about 3.5%. Not worth stretching the payments out, IMO.

'06 Arctic

Most financial books I have read say to pay off the auto loan as it has a higher interest rate than your savings account. Even after you pay off the car with 27K in savings, that seems like a pretty good emergency fund, although I don't know the lifestyle you live and other bills you may have i.e. mortgage, entertainment expenses, etc. And as you state, without the $400 monthly payment, you can save that $13K back up pretty fast. I would say go for it.

MMsTSX

always pay off all loans as early as possible.
debt = very, very bad.

CiViCKiDD

I guess it depends. When I bought my car they offered 2.9% financing, that's what I'm paying and I think my savings account gives me a little bit more interest.

I have money in my account in case I need it..I'm really not losing any money by not paying the car off in full.

LuvMyTSX

Not necessarily. Not all kinds of loans are bad. You need some to build credit, especially when young. As long as you pay it on time, it doesn't hurt anything.

Obviously, you don't want credit card debt.

nj2pa2nc

When I bought my 06 tsx in Nov. 06, I was going to pay for the whole thing but then decided to get a $10,000 loan for 60 months. I paid extra each month, making my last payment last month so I paid off the loan in less than 2 years. I do have a mortgage but no credit card debt.

MMsTSX

loans for building credit = secure loans.

loans to buy stuff = bad.

add up all your finance payments then tell me again you're not
losing money by financing your car.

and the intrest on your car loan is not the same as the interest
from your savings account. not even close.

you guys owe it to yourselfs to research and understand better.

debt is not a game.

'06 Arctic

And don't take advice from someone who apparently failed fourth grade math. Last time I check 30K-13K = 17K not 27K. Even 17K seems like a good emergency fund for a 24 year old. Props to you for saving so much. Pay it off.

HI OFECR

X2

I wouldn't pay it off,,,, just make double payments, will look really good next time you go to get a car loan, Or go to buy a house.

Even credit card debt isn't that horrible, as long as you don't go over half your limit and pay them off.

Installment loans build credit PERIOD.

Banks want to see GOOD, ON TIME payment history over long periods of time.

hunterk1

I think you know it all depends on the rates.

If your crystal ball says that the market has stabilized (ha ha) and you buy into a fund that will pull 6-8% over the rest of the life of your loan, you should not pay off the car early. Invest the $30k, and the interest earned will more than make up for the car interest payments. Problem is, you just don't know.

If you've got the $30k in a savings account making 2%, and that's all you plan to do with it, pay off the car ASAP.

MMsTSX

again...

if you want to build credit, that's what SECURED LOANS are for.

paying interest on credit cars, or car loans, or any other debt loans for that
matter just to build credit is, sorry to say, just plain stupid.

I paid off my Acura in only 3 months.
and guess what happened when I walked in two months later and asked
for another $40k loan to buy the Infiniti?

they turned me away right?
because I paid my other car off so quick and don't use credit cards... right?

no, actually they gave it to me right on the spot.
one phonecall and it was approved.
they asked me how long I was going to take to pay it off.
I said, "4 months, but make the loan for 2 years just in case."

and it was a done deal.

I understand plenty about credit, and how it works. I also understand about
debt and how that works. kind of essential I would think.


and invest in the stock market?
in mutual funds?

lol.

yeah, that's a bright idea.
let's bank our car on some mutual fund and hope I profit enough
to cover the interest...

yeah, um...

...

pay the car off.

ofusball21

Thanks for all the input. I think I am going to go ahead and pay it off. I already do make regular monthly payments for school loans and credit card bills so I'm not worried about trying to build a credit history. The smartest thing financially I think is to go ahead and pay it off. It won't take me too long to get my savings back up and I live as frugal/smart as possible anyway.

Its going to be nice actually owning the car and now I can really focus on saving up to buy a house. Thanks again

04-6mt-atx

iTrader: (2)

exellent decision IMHO.

jswim99

I took out a low rate loan when I bought my TSX, but paid it off about 6 months later. I got tired of tracking the payment and the debt burden just to save a couple hundred bucks per year.

People who subscribe to the interest rate arbitrage game of taking out a loan to keep their cash in investments (savings acct, stock mkt, etc) usually forget that interest income is taxed. If your savings account pays you 3%, you need to subtract the taxes to find the "equivalent" rate that truly must be better than the loan, which in this case is probably like 2.15%. Also, paying off a loan is essentially a _guaranteed_ effective investment of the loans interest rate. There are not too many guaranteed "real" investments that pay 5-6% (or more), after taxes. Look at the stock market (-40%), the best savings accounts (3-4%), etc, etc.

Good move paying off the loan.

ESHBG

Exactly!

MMsTSX

thank god other people here have some money sense!

and to the OP...

best possible move!

SpideRider

My last two loans (one for a motorcycle and one to pay off the ex-GF) I paid off at least 2.5 years early.
It makes you feel so much better.