Overhaulin'

Should I pay off my high interest car loan?

I have $13k saved my car loan is $10k interest rate is 17% interest a year is almost 2K Should I empty my savings to pay off the loan?

Public Comments

1. Do not do this. Always have at least 6 months worth of living expenses in a savings account or invested short term. No one, absolutely no one should live without this under any circumstances. You could lose your job - then you have a paid off car - but no money for gas, repairs, or insurance.. /
2. Congrats on saving the money. Rather than emptying your savings why not borrow against your savings. Take a loan at the institution where you have the savings, using the savings as collateral. You should be able to get a much better interest rate on the loan & the savings will be unavailable for you to withdraw but they will still be earning a little interest. So you reduce your interest rate without spending all your savings. Keep saving but throw as much money as you can at the loan. Hopefully you have the savings at a credit union. Go is & see what they say. This worked for me all through my college years.
3. I would. That would leave $3k as the start of a rainy day fund, and then I would continue to put away the same amount as loan repayments. The difference is instead of losing a good slice to interest, it all would boost my savings, every penny of it. I would very quickly have a substantial sum in case of emergencies or to spend on other things. That would be a very happy position to be in.
4. i'm thinking you should take 5k out of savings to pay off half the loan; get it re-financed too if you can.
5. How about paying off the entire thing with your savings. Then keep paying the payment but putting it into your savings account instead of toward the car loan. That way you're paying yourself back all the money you were paying before. At roughly $200/month, you'll have your money back in savings in just 4 years. But you'll be saving yourself about 14%-16% interest (the difference between the interest you pay for your car loan, and the interest you're receiving for your savings. You'll still have $3,000 in your savings as an emergency fund.
6. I want to say pay off the car loan, but I'm hesitant in this economy. Paying the car loan and continuing to put the payment amount in savings would save the interest payments. However, it could leave you strapped for cash if an emergency happens. How secure is your job? If you were laid off right after paying off the car loan, how many month's expenses would 3K cover? How long would it take to build the savings account back up? Check the terms of the car loan for prepayment penalties and to see if extra payments push out the next payment due date. If no prepayment penalties, you have the option of making a large payment while maintaining some savings/security for the future. Making a large payment will reduce the balance and decrease the interest charges going forward. If it extends the next payment due date, this is added security in case of job loss. If you were laid off, you could skip payments for a little while.