Pay off car loan early?

[Anonymous]

I am trying to save more money and looking where I can cut back. Would paying off my car loan early (doubling payments, applying tax return) be wise or should I just save that extra money I would apply to my loan instead? I have a 0% loan and no other debt outside of my mortgage.

[Anonymous]

If it's a zero percent loan, then that means placing the money in savings is a better move mathematically than using it to pay off a loan.

How's your savings looking now? Do you have the 3-6 months in expenses saved up that many financial planners suggest?

[Anonymous]

At zero percent interest, the only reason I could see for paying off a loan early is to improve your cash flow.

[Anonymous]

Anonymous wrote:If it's a zero percent loan, then that means placing the money in savings is a better move mathematically than using it to pay off a loan.

How's your savings looking now? Do you have the 3-6 months in expenses saved up that many financial planners suggest?

OP here. No, I don't have the 3-6 months emergency fund. I suppose it does make more sense to get that saved first.

[Anonymous]

I just got a lump sum bonus from work and paid off my car loan. Financially it is not the best alternative as my rate was really low - but I prefer the flexibility of the cash flow.

Now I have an extra $600 a month that goes to my HELOC to help pay down a major renovation we did 2 years ago. The rate on the HELOC is higher than the car loan was - but for me, mentally I like saying - my car is paid off. The 10K to the HELOC would be nice as well -but not the same level of dent.

[Anonymous]

If it's 0%, I'd let it sit.

[Anonymous]

I recommend that you add on a money market or whatever the highest interest account to your bank account. Every month, or whenever you have additional money (tax return, annual bonus, whatever), put it into that account and don't touch it. Let it build as much interest as possible. The last month of your 0% loan (if it's one of those 0% for 12 months then something higher for months 13+ or something like that), then pay it off in full. Otherwise, make the minimum payments to take advantage of the no interest loan to save up money and get that extra few dollars from saving.

[Anonymous]

If you aren't busting your cash to pay off your loan, I'd do it.

Ex. if you have $50k in cash and a loan balance of $15k, I'd do it. If you have $20k of cash and a loan balance of $15k, I wouldn't do it.

[Anonymous]

OP here. No, I don't have the 3-6 months emergency fund. I suppose it does make more sense to get that saved first.

Probably. It does feel good psychologically to pay off a loan, I know. But I think that if you have enough money to double payments, and you're expecting a nice-sized tax return, it'd be better to use that money to bulk up your emergency fund, then turn to paying off loans.

[Anonymous]

I am paying mine off early.

[Anonymous]

Anonymous wrote:

OP here. No, I don't have the 3-6 months emergency fund. I suppose it does make more sense to get that saved first.

Probably. It does feel good psychologically to pay off a loan, I know. But I think that if you have enough money to double payments, and you're expecting a nice-sized tax return, it'd be better to use that money to bulk up your emergency fund, then turn to paying off loans.

+1

YOu dont' gain anything by paying it off early. You need an emergency fund.