I have about $6,000 left on the Murano and I'm itching to pay it off. Interest rate is 2.9%. At the rate I'm making payments, it'll be paid off spring/summer 2008.

I have the cash to pay it off. So I'm wondering if I should just do it. Numbers wise, it doesn't make sense to do it since I'm getting 5% in the money market account, so I'm doing 2% better versus the loan.

However, I fucking hate having a car note. I'd just take the money I was using for payments and add to the cash whore fund for: 529 investment, custodial investment, personal investment, emergency fund, *new car fund* etc.

Pay it off?

 

Are you taxed on the 5% you are earning? If so the end end result might be a very negligible amount of benefit.

 

That's true. It's considered ordinary income.

Good point.

 

I don't see the point to paying off a depreciating asset. I say keep the money you have and let your interest pay off as much of it as possible. Try to get over "hate having a car payment" mentality, you have a low rate and are better off paying it off over time.

That said, as Fiddle mention the difference is not astronomical, so if it really bother you that much, just go ahead and do it.

 

I'm in the same boat you are. I have about 18 months left on the van and I just want to get rid of it.

Take a look at the amortization table for your loan. You'll notice that you are over the hump. Most of your payment is principle now, so you won't be saving much interest by paying it early.

On the other hand you don't stand to make a lot of cash if you put that money in the bank at 5% either.

There is a nice psychological effect of suddenly having extra money at the end of every month. So I think I'm paying mine off.

 

The 2% difference shrinks when you have to pay taxes on it, and the interest on the car loan is not deductable.

Pay it off.

 

I'm in the exact position with my TSX except I owe a little under $4k - same interest rate as you, and same 5% savings. Everytime I go to the bank I feel like saying "and oh yeah just transfer whatever I owe from savings" but I stop myself.
In the end, I hate paying the monthly payment, but mine is so low that it really won't make a difference having that little extra cash at the end of the month.

 

If it bothers you that much, pay it off... 2% on 6K is peanuts... ($120 a year ?)

I'm a cheap bastard, so it's tough to advise throwing away money, but I hate monthly loan payments too... Anyone want to pay my mortgage off for me ??

I paid my CL off early, but that was a 4.85 percent loan... and cd's and moneymarkets were in the 2's...

 

I've decided to pay it off in early March. The extra cash flow and positive psychological effect are worth it.

 

I think you mentioned you'd be putting the monthly payment $$ you've freed up into your other funds: 529, new car fund, etc? Have you considered the tradeoffs of having 6k available TODAY for those funds vs. building them back up by the 6k over the next 18 months?

The loan isn't costing you anything now - as pointed out it's almost entirely principal payments now. I'm in the same boat with my CL-S: <5k to go but I want those funds sitting around for other reasons.

 

I have considered this. But we already have a pretty good cash reserve and the 529 already has a significant foundation to it. The new car piece is a MUCH more future thing as the Murano is the oldest vehicle we have and it’s a 2004.

It’s really a psychological thing for me. I suppose if we were strapped for cash and didn’t have a good hold on other much more important things (savings, etc) I’d be thinking differently. I don’t mind writing a check to Nissan every month, but I rather just get it off the books.

 

Well taking 5% in a money market, I'd pay it off too. But there are plenty of investments out there that routinely pull in 10%-12%.

 

I'd pay it off. I was in the same boat at Christmas. I got a heavy bonus I was not expecting & it was just enough to pay off my car. I toyed with investing it, but in the end it made more sense to be debit free. Now I have the $ each month & can do anything with it.

 

The general rule for paying off ANY debt is to pay it off, unless that money is going to go into something that earns more money than you are losing via interest.

If it's pretty close, then it's no biggee either way. Being debt-free rocks, though.

Does car insurance go down if your car is paid off? If so, that's another minor perk.

 

I don't think insurance goes down on it's own, though it should slowly drop over the life of a vehicle, coinciding with paying it off, to make it seem so.

I believe the only drop you get is if your drop your coverage to liability only, which many do.