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Does it make sense to pay off the car loan if you have the money?

We have a 13% car loan (yeah, stupid, I know). DH just got a bonus for reenlisting that happens to cover the cost of the payoff exactly ($17,711.00) and I was wondering if it would be a good idea to pay off the car with that. It would be nice to have an extra $380 a month ($214 of which is interest!) that's not going to the car payment. But does it make sense to do this? DH is complaining that there won't be any money left of his bonus, but if we don't pay it off we'll end up paying all that extra money in interest over the long run. What makes sense here?

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Mia1983

Asked by Mia1983 at 1:11 PM on Dec. 18, 2008 in Money & Work

Level 2 (4 Credits)
Answers (24)
  • I wouldn't pay it all off. It's a good line of credit for you to establish. If it were me, I would take half and pay the half off. Then you still make your monthly payments, but the interest will be less because you are paying it off in half the time. You also want to keep money in a savings account in case of emergency. What if something happens to your car and you need repairs? You will have the money. If you are afraid you will blow the money, open up an ING account and put it in there. They have the highest APR of anyone and you can't be too tempted to pull the money out on a whim cause to withdrawal funds, it takes about 2-3 business days from the day you request the withdrawal.
    goinginsane1

    Answer by goinginsane1 at 1:19 PM on Dec. 18, 2008

  • I will pay it all. Like you said in the long run you are paying a lot of interest. Also in the future you are going to have that extra money every month.
    Jamie8788

    Answer by Jamie8788 at 1:20 PM on Dec. 18, 2008

  • Also, after you pay the 1/2, look around and see if you can refinance the balance at another bank or credit union with lower interest rates. It's easier to refi on a smaller amount.
    goinginsane1

    Answer by goinginsane1 at 1:21 PM on Dec. 18, 2008

  • Pay half and refinance the balance to a lower rate. Then you'll be ahead in the payments and still have money to sock away for a rainy day.
    EireLass

    Answer by EireLass at 1:21 PM on Dec. 18, 2008

  • Deja vu.
    goinginsane1

    Answer by goinginsane1 at 1:24 PM on Dec. 18, 2008

  • Pay off the car; the interest alone that you will save will be worth it since you can't deduct that for tax purposes. Then take the money that you were putting toward your payments and sock that away every month; it'll add up before you know it.
    Anonymous

    Answer by Anonymous at 1:27 PM on Dec. 18, 2008

  • I would either pay half or all of it. Pretend you stil have the payment and put it into savings or heck save half of the payment. Either way, you'd save in the long run. How great would it feel to have that title instead of that payment book?!?!?
    customcat2000

    Answer by customcat2000 at 1:41 PM on Dec. 18, 2008

  • Pay it off! It's so, so nice to have a paid for car!!!
    MaMomToTwo

    Answer by MaMomToTwo at 1:52 PM on Dec. 18, 2008

  • I would PAY IT OFF :o)!!!! You'll be saving a lot of money in the long run! Unless you need to keep the loan to establish credit of course. But even then, you're better off refinancing it, putting more down, and only having a small balance to pay off.
    smboutique

    Answer by smboutique at 2:04 PM on Dec. 18, 2008

  • Do you have any other debts with higher interest? (Credit cards for example) I would pay those off first for sure, and as other Moms have suggested I would pay a lump sum (at least 10k) on the auto loan to the principle so you can pay your auto loan off sooner and save yourself interest. If your hubby is military you may be able to refinance the lower amount through the credit union and get a better rate? I know the Navy has a credit union, just something to look into. Good luck!
    Serafyna

    Answer by Serafyna at 2:29 PM on Dec. 18, 2008

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