Is it worth paying the reaminder of my car loan off?
Is it worth paying the reaminder of my car loan off?
I got my car (2020 Ford Fusion Hybrid SE) new 3 years ago at $25k for a 6 year loan @ 0% interest for entirety of loan, $350 a month payment. I'm about halfway paid off and have about $12.5k left on it. What should I do? I just get sick of paying $350 a month.
With inflation your money is worth less over time, so you're actually paying less for the car if you do the payments over a few years. Especially these days. Just since 2020 the dollar has inflated 18%
https://www.treasurydirect.gov/savings-bonds/i-bonds/
Put 10k here. Make a free $1200 over those three years.
If you dont want to take risks investing it chuck the savings in an account and have the loan payments taken from that account. If nothing else it keeps your funds liquid incase you need emergency cash.
Most people are skipping the important point here, though I did see it at least once: the money you pay now is worth more than the money you'll pay next year, or the year after that. That's true not only because of inflation, but also because of your own earning power. Are you making the same amount of money today that you were making 3 years ago? Probably not--I'd guess that you're making a little more. That means that each dollar you spend was a little easier to get, and is thus is worth a little less. The 12.5 K that you would pay now is probably worth more to you than it would be if it was spread out. So spread it out. The more dollars you pay later, the less those dollars are worth. This is a no brainer on a no interest loan, but it can still be true even if you're paying interest, though the calculation gets a little complicated. If you have a relatively low interest loan, it might make more sense for you to keep making payments than to try to squeeze it in all at the beginning, especially if it's a house mortgage (which are usually long-term). Those monthly payments, in 20 years, will be worth a lot less than they are now. It might seem crazy, but it doesn't always make sense to maximize payments at the beginning of a loan just to reduce interest because 2023 dollars are not the same as 2043 dollars.
Setting aside the talk about interest, etc., I would double check the terms of your loan.
Almost no lending institution is going to give you $25k at 0% for the life of the loan. They wouldn't be making any money. In fact, servicing the loan (taking payments, etc.) would cost them money.
Are you sure it's for the life of the loan?
Car loans are very frequently extremely low interest rates when financed through the dealership. I personally have a 0.99% car loan.
The days of the 0% for X months financing are coming rapidly to an end as inflation and the federal reserve interest rate both go up. But even those loans, while they incentivize the buyer to pay the loan off early, will still apply interesting -- sometimes, if you're not careful, all the deferred interest for the past X months, which is extra shitty -- after the 0% period is complete. I think the only major manufacturer this season that's offering any sort of 0% deal is NIssan, and they're sort of going all in, probably in an attempt to move excess inventory.
It's just not a thing to see a lender not charge interest. It's like, going to Taco Bell and ordering a burrito for $0.
There are, of course, some exceptions. The dealer may be subsidizing the interest payments. The lender/servicer may be pulling some (probably) illegal shit and calling "interest" a "service fee" or are perhaps charging a "payment processing convenience fee" to make their money. The dealer / automaker may be paying the servicer's bills on the backend, but don't think for a moment that cost isn't baked into the sale price of the vehicle. I just can't see a case where a lender would be okay working for free.
Captive finance companies do this all the time because they make money on the margin of the product. The financing is just an incentive to get up to purchase the product.
If it's always $350 a month, just let the debt ride.
Over 6 years, $350 in year 1 is worth more than $350 in year 6 thanks to inflation (350$ in 2017 would be able to buy you $435 worth of goods or services today). If you have $12.5k sitting around - Invest that into something stable, collect the interest and just keep paying off the loan slowly because that's the cheapest way to do it (unless we end up with negative inflation in the next 3 years - which seems unlikely, but who knows??)
Cars tend to be financial liabilities, depreciation on a new car is just tremendous - next time just get a beater with working AC for as little as possible, do your maintenance and run it into the ground.
just get a beater with working AC for as little as possible, do your maintenance and run it into the ground.
Doing this right now, getting/learning manual makes it fun. Plus, at least for me, the used standards come cheaper.
I personally love standards. It's more fun, and it comes with passive theft deterrent
If you don't pay it back though, won't your car get repoed? I feel like I'm missing something with the responses here.
Edit: thanks chums, @Num10ck, @bstix. Thank God this is nostupidquestions because I knew I was missing something basic.
I interpreted the title to mean, "continuing to pay off the remainder as usual," as opposed to in a lump sum.they are talking about paying it off (early lump payback rather than monthly as agreed)
He's asking if he should pay the rest of the loan off now or keep paying in installments, not if he should just stop paying it.
If you need to take out another loan for something else then pay it off. So you have less debt on the books. Otherwise just keep the loan. It’s zero interest
At 0% interest the cost of your money is nothing, so you save nothing by paying it off early. you will be better off taking your extra money and putting it towards other debts (1st) or investing them (2nd). In fact, even if you do nothing with you extra money now you will still come out ahead because of the future value of the dollar decreasing with inflation.
I mean think about how much money that 12.5k could generate for you, especially since you're not paying to use the car manufacturers money. The interest rate is the cost to borrow the money.... you're getting it for free. Put the money...we'll ask a fiduciary they have to give you good advice not based on a commission or profit.
Does that $350 include car insurance? Once you pay off the lien and own the car, insurance should be a lot cheaper.
Why would insurance be cheaper?
Because as long as there's a lien on your car, the bank that owns it wants to make sure it's thoroughly insured until it's paid for. Their insurance is mandatory and usually much more comprehensive (and expensive).
I see, and I hope I'm not coming off as patronizing or anything; however, what happens at the end of the 6 years if you fail to pay everything back? From my understanding of 0% interest loans (which I'm not a particularly financially savy person), if it's not paid back by the end of that time (6 years in this case) you'll most likely receive huge penalties. Not only to your credit score, but also to your wallet since you'll probably be required to pay back much more at that point. Maybe you don't make regular monthly payments, and there are no immediate penalties, but at the end of those 6 years you'll still owe what's left. I'd rather make a bunch of $350 payments than one $12.5k payment. Unless you could afford that, I just don't think most people can ¯\_(ツ)_/¯
I just think staying in your current payment plan would be best. No matter what, you'd have saved at least $350 for your car each month, you might as well just pay it as it goes. Don't pay it of too early it anything, but do what you can to reach that end goal. I could be wrong, but I doubt a car dealership would give out an untimed, pay whenever you want loan to somebody. Most dealers are out to make money and giving somebody a loan like that wouldn't do them any favors. Even if you have good credit.
Is it absolutely 0% or is it 0% with a $10/month administration fee? If the former, don’t pay it off early, just set up a standing order/direct debit and let it pay itself down. If the latter, you need to calculate the comparison rate (which will get higher the closer you get to zero balance), and work out what the break even is. Then carry on paying until you hit the point that the effective interest is greater than the interest on your savings account and at that point pay it off in full.
The action you should take depends on your goal. If you're aiming to make the best financial decision, you might calculate whether it would be more beneficial to invest $12.5k now, or to invest $350 each month instead. The latter would be possible if you decided to pay off the loan. However, if your decision is about feeling better, then paying off the loan seems to be the only option that would satisfy you. If you're from the US, having a loan might be necessary to get future loans.
If you're not 100% sure that you'll be able to comfortably pay that $350 each month for the remaining 3 years then pay it off now. Otherwise keep the loan.
If you have the means to pay it off early, I would. It is worse for your credit score, but you will feel great not having that payment hanging around your neck. I can practically guarantee that you won't regret not having to make that payment each month.
It's never a good idea to try and screw somebody over that's given you a good deal, not that I'm saying that's your intent; however, that being said, I would pay the loan and not take advantage of it, just to be safe. It's good for your credit score, it'll erase debt, and you don't know what could happen in the next few years. Medical accident, have a kid, get married, can't work, get paid off, something, anything that can happen to somebody. You wouldn't want some $12.5 grand just hanging around in debt. No matter what, that'll have to be paid off some way, some how. Better to get it out of the way in my book, especially if you can right now. If you have a financial planner or fiduciary I'd talk to them too for questions like this. Not degenerates like me. Hope that' helps. Not trying to scare you, but I don't ef with debt.
Another consideration is that most auto loans require you to have full coverage for your vehicle. If you pay it off early you can reduce coverage if that's right for you.
But they should know that AS SOON as you drop coverage, THAT'S when it gets totaled.
Pay it off and start paying yourself $350 a month.
No, don't do this. Invest the lump sum of money now because at zero interest, you're not gaining anything by paying it off.
The lump sum of 12k will be worth much more invested now than 350 a month trying to get back to that amount
Pay it off. New car loans should not be more than 5 years and used should not be more than 3. You risk hitting a point where you're paying payments and repairs at the same time.