Pay off car loans or not?

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Captain Oveur
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Pay off car loans or not?

Post by Captain Oveur »

I have 2 car loans: One for a used Lexus purchased in 2017 at 2.7% /60 mos with $13,500 left on the loan at $457/mo.
The other for a Honda Odyssey, new at 2.89% /60 mos with ~$29,000 @ 573/mo.

We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.

Trying to decide if it's worth paying these loans off early, maybe just the lexus, maybe 1/2 of each...I don't know. The monthly savings would help our budget but we'd lose a chunk of cash (maybe repay ourselves with the money we save each month). There are no prepayment penalties.

Anyone have any advice that might help me see another perspective and make the decision easier? Thanks
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RickBoglehead
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Re: Pay off car loans or not?

Post by RickBoglehead »

You didn't say how much is in Ally as compared to the car loans, but you're only getting 1.8%, and the loans are higher.

Are you planning on buying the future home in the months left on the car loans? In other words, if you had 20 months left on each, they'd be paid off and your Ally balance wouldn't have changed. Or, if you pay them off now AND put funds in the Ally account (without the car loan interest), you'd be slightly ahead.

One thing you should have done - put Ally funds in No Penalty CDs. I ignored these for years, always "going to use the money soon". Finally, late summer I put a big chunk in 2.3% NO Penalty CDs, bought a bunch of them, so if I need some money I only have to break 1.

You can get 1.9% for $25,000+ right now.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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Captain Oveur
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Re: Pay off car loans or not?

Post by Captain Oveur »

RickBoglehead wrote: Thu Dec 12, 2019 12:17 pm You didn't say how much is in Ally as compared to the car loans, but you're only getting 1.8%, and the loans are higher.

Are you planning on buying the future home in the months left on the car loans? In other words, if you had 20 months left on each, they'd be paid off and your Ally balance wouldn't have changed. Or, if you pay them off now AND put funds in the Ally account (without the car loan interest), you'd be slightly ahead.

One thing you should have done - put Ally funds in No Penalty CDs. I ignored these for years, always "going to use the money soon". Finally, late summer I put a big chunk in 2.3% NO Penalty CDs, bought a bunch of them, so if I need some money I only have to break 1.

You can get 1.9% for $25,000+ right now.

Hi Rick,

I do have money in the CDs @ ALLY btw. 3 of them along with just regular account money. We are ready to pull trigger on house if the right one comes up.
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RickBoglehead
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Re: Pay off car loans or not?

Post by RickBoglehead »

Captain Oveur wrote: Thu Dec 12, 2019 12:26 pm
RickBoglehead wrote: Thu Dec 12, 2019 12:17 pm You didn't say how much is in Ally as compared to the car loans, but you're only getting 1.8%, and the loans are higher.

Are you planning on buying the future home in the months left on the car loans? In other words, if you had 20 months left on each, they'd be paid off and your Ally balance wouldn't have changed. Or, if you pay them off now AND put funds in the Ally account (without the car loan interest), you'd be slightly ahead.

One thing you should have done - put Ally funds in No Penalty CDs. I ignored these for years, always "going to use the money soon". Finally, late summer I put a big chunk in 2.3% NO Penalty CDs, bought a bunch of them, so if I need some money I only have to break 1.

You can get 1.9% for $25,000+ right now.

Hi Rick,

I do have money in the CDs @ ALLY btw. 3 of them along with just regular account money. We are ready to pull trigger on house if the right one comes up.
Then, unless you're willing to put less down on the house, pulling $42,500 out of the house money doesn't make sense. You're not going to beat the car loan rates with the mortgage, and paying off the car loans would raise your mortgage principal and you'd be financing the cars (their balance) for the life of the mortgage at a higher rate.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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Captain Oveur
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Re: Pay off car loans or not?

Post by Captain Oveur »

All great points. Thanks!
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Brianmcg321
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Re: Pay off car loans or not?

Post by Brianmcg321 »

Yes, pay them off.

Next time buy used with cash. Having that much money in depreciating assets is not a good financial plan. Plus the added stress of those payments isn't worth it.
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j0nnyg1984
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Re: Pay off car loans or not?

Post by j0nnyg1984 »

I would pay the cars off immediately. I don’t understand why you’d purchase a house when the budget is already tight due to those auto loans.

Get out of debt before buying the house.
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dm200
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Re: Pay off car loans or not?

Post by dm200 »

Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm I have 2 car loans: One for a used Lexus purchased in 2017 at 2.7% /60 mos with $13,500 left on the loan at $457/mo.
The other for a Honda Odyssey, new at 2.89% /60 mos with ~$29,000 @ 573/mo.
We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.
Trying to decide if it's worth paying these loans off early, maybe just the lexus, maybe 1/2 of each...I don't know. The monthly savings would help our budget but we'd lose a chunk of cash (maybe repay ourselves with the money we save each month). There are no prepayment penalties.
Anyone have any advice that might help me see another perspective and make the decision easier? Thanks
My opinion - do not pay them off, but rather take that amount and "invest" (mix of equities, fixed income, etc) in tax advantaged/retirement or taxable for longer term.
Afty
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Re: Pay off car loans or not?

Post by Afty »

Prepaying the car notes seems equivalent to pulling money out of savings to live on. In your situation I would prefer the liquidity of keeping the car loans and having a large cash fund to help make ends meet.
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Watty
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Re: Pay off car loans or not?

Post by Watty »

There are several variations on a saying,

"You can do anything you want, but not everything you want."

You have a lot of things going on, two expensive cars, new kid, wanting to buy a house, taking time off work(which is understandable), and probably other things you did not mention.

The answer is not to fine tune how to juggle your money it is to set your priorities and cut back in some of the areas that are not your highest priorities.

In economics there is a concept of "opportunity cost" where you look at the cost of something as being what you have to give up to get something else. For example a teenager may have enough money to either go to a movie or buy a pizza, but not both. The opportunity cost of the pizza is not seeing the movie.

When you recently bought the Odyssey the opportunity cost of buying it may have been that it delays when you can buy the house by a few years.
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Re: Pay off car loans or not?

Post by LittleMaggieMae »

Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm
We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.
You say money is tight and that you are saving for a house (ready to pull the trigger if the right one comes along). This leads me to believe you are still "saving" money each month (maybe to the house Down payment "fund").

Instead of "paying off the low interest loans" with saved money so you can turn around and borrow the same money at a higher rate (the future mortgage) - can you re-direct some of the money going to your "general savings" - I don't know what you call it in your spending plan - in my plan it's "extra fun money" and "money for hobby stuff" and some above and beyond money I'm saving for retirement (because I haven't taken on any additional debt to replace the previous debt I paid off... I do serial debt :) )... I cut back on "savings" for descretionary stuff when I find money is gonna be tight for a handful of months. And then I go back to 'saving'. You do have some money going to savings for some future discretionary spend you can live with out a little longer don't you? Just a thought.
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Re: Pay off car loans or not?

Post by rossington »

Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm I have 2 car loans: One for a used Lexus purchased in 2017 at 2.7% /60 mos with $13,500 left on the loan at $457/mo.
The other for a Honda Odyssey, new at 2.89% /60 mos with ~$29,000 @ 573/mo.

We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.

Trying to decide if it's worth paying these loans off early, maybe just the lexus, maybe 1/2 of each...I don't know. The monthly savings would help our budget but we'd lose a chunk of cash (maybe repay ourselves with the money we save each month). There are no prepayment penalties.

Anyone have any advice that might help me see another perspective and make the decision easier? Thanks
You are $42,500 in debt on VEHICLES :oops:
I just don't understand why people get sucked into 5 year financing ...typically at 0% (....why are you paying interest at all??).
Sell both vehicles and downsize to one or two that you can pay CASH for with the money you got for both. Yes, they are out there.
Now is not the time to buy a house.
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Re: Pay off car loans or not?

Post by Outer Marker »

I would pay off those car loans in a heartbeat. You're losing 1 percent in guaranteed return. You indicate that you have "a lot" saved up for a house. You may need to adjust how much house you buy after paying off the car loans. Personally, I would not buy more house than I could afford with a 20% down payment and the ability to comfortably handle a 15 year fixed mortgage while continuing to max out all tax-advantaged work retirement accounts and funding an annual maximum Roth contribution. I'd also resolve to drive those vehicles into the ground and not take on any more expensive consumption items that strain your monthly budget. Good news is that your daycare expenses will evaporate after your kids start school, and you can use that free cash to increase your retirement savings and fund 529 college plans (if you are not doing so already.).

I have never had a car loan in my life and have only bought cars I could pay cash for. That has ranged from an ancient Toyota Tercel I bought in college for $1,200 to a nice BMW I drive today. Bought new in 2007 and still fun to drive, going on 13 years old. It is the oldest car in my company parking lot by far, and I make considerably more than many people driving those fancy new cars on 5 year loans. Financial independence is more important to a happy life. The Millionaire Next Door would be a great read for you.
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Re: Pay off car loans or not?

Post by EnjoyIt »

Watty wrote: Fri Dec 13, 2019 12:33 am

The answer is not to fine tune how to juggle your money it is to set your priorities and cut back in some of the areas that are not your highest priorities.
for
Best response so far.

Figure out what is least important to you and cut some of those things out. It may not have to be the cars or buying a house soon. It could be regular take out for lunch, or a daily cup of bought coffee. Maybe it is cable TV or some other item(s) of low value. There has to be some expenditures in your life that are of low priority that you can cut so that you can pay for the items you value the most.
Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm . . .Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.
...
If money is tight, you need to spend less or make more. There is no further answers to your question.

What bothers me most about your post is that there is no discussion for retirement savings in there. I hope you have some.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Re: Pay off car loans or not?

Post by chevca »

j0nnyg1984 wrote: Thu Dec 12, 2019 5:09 pm I would pay the cars off immediately. I don’t understand why you’d purchase a house when the budget is already tight due to those auto loans.

Get out of debt before buying the house.
+1... this is exactly what I was thinking reading the opening post.
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Captain Oveur
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Re: Pay off car loans or not?

Post by Captain Oveur »

EnjoyIt wrote: Fri Dec 13, 2019 6:05 am
Watty wrote: Fri Dec 13, 2019 12:33 am

The answer is not to fine tune how to juggle your money it is to set your priorities and cut back in some of the areas that are not your highest priorities.
for
Best response so far.

Figure out what is least important to you and cut some of those things out. It may not have to be the cars or buying a house soon. It could be regular take out for lunch, or a daily cup of bought coffee. Maybe it is cable TV or some other item(s) of low value. There has to be some expenditures in your life that are of low priority that you can cut so that you can pay for the items you value the most.
Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm . . .Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.
...


If money is tight, you need to spend less or make more. There is no further answers to your question.

What bothers me most about your post is that there is no discussion for retirement savings in there. I hope you have some.

Both wife and I have reached the 19000 max to 401K. My company puts in 16% of my salary per year into my retirement account as well. Retirement is not an issue, and we plan to start utilizing back door roth next year since we are both above IRS limits for standard ROTH. And both kids 529s are well funded to the tune of 500/month each kid.
EnjoyIt
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Re: Pay off car loans or not?

Post by EnjoyIt »

Captain Oveur wrote: Sat Dec 14, 2019 10:26 am
EnjoyIt wrote: Fri Dec 13, 2019 6:05 am
Watty wrote: Fri Dec 13, 2019 12:33 am

The answer is not to fine tune how to juggle your money it is to set your priorities and cut back in some of the areas that are not your highest priorities.
for
Best response so far.

Figure out what is least important to you and cut some of those things out. It may not have to be the cars or buying a house soon. It could be regular take out for lunch, or a daily cup of bought coffee. Maybe it is cable TV or some other item(s) of low value. There has to be some expenditures in your life that are of low priority that you can cut so that you can pay for the items you value the most.
Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm . . .Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.
...


If money is tight, you need to spend less or make more. There is no further answers to your question.

What bothers me most about your post is that there is no discussion for retirement savings in there. I hope you have some.

Both wife and I have reached the 19000 max to 401K. My company puts in 16% of my salary per year into my retirement account as well. Retirement is not an issue, and we plan to start utilizing back door roth next year since we are both above IRS limits for standard ROTH. And both kids 529s are well funded to the tune of 500/month each kid.
Wonderful and glad to hear. Now all you need to do is figure out what consumption items provide you the least value so that you can cut them out and make your budget less “tight.”
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
System1
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Re: Pay off car loans or not?

Post by System1 »

From reading the range is responses between sell both cars and use that money to buy cheaper ones to keep loans and put money into savings, I think the answer depends on a lot more factors than just the debt amount and the interest rate. You certainly will not get that low of a rate on your mortgage, but you will get a guaranteed return of 2.7% by paying off the loans. So you'll have to decide on your priorities. Certainly being able to get a 15yr mortgage with 20% down is a great place to start. If your cash flow doesn't support your car payments plus what that mortgage amount (minus current mortgage/rent) then you should look at cutting back your spending somewhere. Also there are tax considerations to these decisions. Mortgage interest is deductible (depending on income) but, auto loans are not. Someone mentioned Millionaire Next door, the premise of that book isn't that slight changes in investment or loans will make a difference in the long run, rather that frugal spending will lead to the most wealth generation independent of income.

Best wishes in the future!
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Re: Pay off car loans or not?

Post by abuss368 »

I hate paying off car loans early in such a low interest rate environment and especially considering a car is a wasting asset.

Do you have any other loans or a mortgage? I would pay down a mortgage before a car.

The Lexus loan is low enough that I would expect most is going (or soon will) to principal.
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Re: Pay off car loans or not?

Post by 1130Super »

System1 wrote: Sat Dec 14, 2019 2:16 pm From reading the range is responses between sell both cars and use that money to buy cheaper ones to keep loans and put money into savings, I think the answer depends on a lot more factors than just the debt amount and the interest rate. You certainly will not get that low of a rate on your mortgage, but you will get a guaranteed return of 2.7% by paying off the loans. So you'll have to decide on your priorities. Certainly being able to get a 15yr mortgage with 20% down is a great place to start. If your cash flow doesn't support your car payments plus what that mortgage amount (minus current mortgage/rent) then you should look at cutting back your spending somewhere. Also there are tax considerations to these decisions. Mortgage interest is deductible (depending on income) but, auto loans are not. Someone mentioned Millionaire Next door, the premise of that book isn't that slight changes in investment or loans will make a difference in the long run, rather that frugal spending will lead to the most wealth generation independent of income.

Best wishes in the future!

It could mean putting 20% down on a house though and not paying Pmi, I’d keep the cash and put as much down on house as possible
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Re: Pay off car loans or not?

Post by dm200 »

It could mean putting 20% down on a house though and not paying Pmi, I’d keep the cash and put as much down on house as possible
Here is just one example of a credit union that offers mortgages with little or no down payment - and no PMI is required

https://www.nasafcu.com/personal/mortga ... ge-options
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Re: Pay off car loans or not?

Post by hbdad »

If some of the posters could help me understand, why do you suggest buying a car with cash? I'll admit, that was my plan when I purchased my new car. I saved money for years. I have enough money to buy it outright in cash. But my financing was 1.9. my money in ally is making 1.9. So instead of paying all cash, I financed roughly 54% of the purchase price and put down 46%. I'd rather have the liquidity than 20k or 30k or 40k in a depreciating asset. Also, for all those who suggest buying a car with cash, wouldn't it be more prudent to invest the money? After all, if you can get a loan somewhere between 0-2.5%, isn't it reasonable you will generate more than that over 5 years investing. Or even longer if you keep the money invested beyond 5 years?
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Re: Pay off car loans or not?

Post by Trader Joe »

Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm I have 2 car loans: One for a used Lexus purchased in 2017 at 2.7% /60 mos with $13,500 left on the loan at $457/mo.
The other for a Honda Odyssey, new at 2.89% /60 mos with ~$29,000 @ 573/mo.

We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.

Trying to decide if it's worth paying these loans off early, maybe just the lexus, maybe 1/2 of each...I don't know. The monthly savings would help our budget but we'd lose a chunk of cash (maybe repay ourselves with the money we save each month). There are no prepayment penalties.

Anyone have any advice that might help me see another perspective and make the decision easier? Thanks
Pay off your loans and live debt free.
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Re: Pay off car loans or not?

Post by babystep »

Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm I have 2 car loans: One for a used Lexus purchased in 2017 at 2.7% /60 mos with $13,500 left on the loan at $457/mo.
The other for a Honda Odyssey, new at 2.89% /60 mos with ~$29,000 @ 573/mo.

We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.

Trying to decide if it's worth paying these loans off early, maybe just the lexus, maybe 1/2 of each...I don't know. The monthly savings would help our budget but we'd lose a chunk of cash (maybe repay ourselves with the money we save each month). There are no prepayment penalties.

Anyone have any advice that might help me see another perspective and make the decision easier? Thanks
The rule of always pay higher interest rate loan first would say pay off the Odyssey but I will actually pay off Lexus because of the longer duration of Odyssey and smaller amount on Lexus and the rates are very close. This will reduce the outlay by $457 and hope that should be enough.

Think of buying 2 years 7 month tax free CD at 2.7% when you pay-off the Lexus.
Think of buying 4 years 7 month tax free CD at 2.89% when you pay-off the Odyssey.

The home loan will be most likely higher than 2.89%. May be around 3.89%. By keeping the 2.89% loan for 5 years and paying down more towards the home loan, you can effectively save 1% interest for the duration of Odyssey loan. I assume you will not be able to itemize because most folks can't. Also, you will be saving 0.9% after tax for the duration of Lexus.
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Re: Pay off car loans or not?

Post by Admiral »

hbdad wrote: Sun Dec 15, 2019 7:40 pm If some of the posters could help me understand, why do you suggest buying a car with cash? I'll admit, that was my plan when I purchased my new car. I saved money for years. I have enough money to buy it outright in cash. But my financing was 1.9. my money in ally is making 1.9. So instead of paying all cash, I financed roughly 54% of the purchase price and put down 46%. I'd rather have the liquidity than 20k or 30k or 40k in a depreciating asset. Also, for all those who suggest buying a car with cash, wouldn't it be more prudent to invest the money? After all, if you can get a loan somewhere between 0-2.5%, isn't it reasonable you will generate more than that over 5 years investing. Or even longer if you keep the money invested beyond 5 years?
The reason is because paying cash, generally, forces you to save the money, while financing allows you to spend money you don't yet have (and, very often, spend more than you otherwise would).

Now, once one HAS the money, then it becomes a choice about whether one can make more money investing vs financing. At 0% financing, it's a no brainer. At higher rates, it may or may not be. For a fixed interest investment, the comparison is easy. For a market investment like stocks, one may be LIKELY to beat a low-rate auto loan, but for a short period like 5 years, there are no guarantees. If you're comfortable with that risk, then by all means invest in the market as per your asset allocation.

I would have no issue with a 1.9% loan, and would likely take it, but I would also put down at least $10-20k on a car (depending on its price). I would not take any car loan than was more than 5 years, and preferably less.
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Re: Pay off car loans or not?

Post by 1130Super »

dm200 wrote: Sun Dec 15, 2019 3:58 pm
It could mean putting 20% down on a house though and not paying Pmi, I’d keep the cash and put as much down on house as possible
Here is just one example of a credit union that offers mortgages with little or no down payment - and no PMI is required

https://www.nasafcu.com/personal/mortga ... ge-options
Typically banks & credit unions that offer no pmi with less than 20% down have higher rates that if they were to put 20% down The bank in my town offered a 10% down no pmi loan but the rate was .5% higher for the life of the loan. I Looked up your link and the sites advertised rates requires 60% LTV
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Re: Pay off car loans or not?

Post by Jags4186 »

If you just want to free up your cash flow, paying off your car notes is an easy way to do it. You'll be saving ~$1000/mo in payments. And your savings which is only getting 1.8% would now be saving you ~3% on interest.

If your budget is already tight and you have ~$1000 in loan payments already, can you qualify for a mortgage or the house you want? All of these things work in tandem.

Personally, I prefer to not have payments rather than have a big chunk of change sitting in an online savings account. I think when folks choose to carry low interest loans around on consumables (cars, boats, RVs, computers, phones, furniture etc.) under the pretense of liquidity it can lead to overstretching oneself. Only you know yourself.

I have no idea what type of income you have, but $1000/mo in car payments would definitely keep me up at night.
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Re: Pay off car loans or not?

Post by Living Free »

hbdad wrote: Sun Dec 15, 2019 7:40 pm If some of the posters could help me understand, why do you suggest buying a car with cash? I'll admit, that was my plan when I purchased my new car. I saved money for years. I have enough money to buy it outright in cash. But my financing was 1.9. my money in ally is making 1.9. So instead of paying all cash, I financed roughly 54% of the purchase price and put down 46%. I'd rather have the liquidity than 20k or 30k or 40k in a depreciating asset. Also, for all those who suggest buying a car with cash, wouldn't it be more prudent to invest the money? After all, if you can get a loan somewhere between 0-2.5%, isn't it reasonable you will generate more than that over 5 years investing. Or even longer if you keep the money invested beyond 5 years?
Yes, the financing rate was 1.9% and your interest rate on the ally money is 1.9%, but what is your after tax return on the ally money? I presume there is some federal (and possibly state) tax owed, though it's possible that you don't pay any. If you're in the 22-24% federal tax bracket then your after tax return on that ally money is more like 1.5%, so it's a less attractive strategy. Though one might also argue that the interest rate of 1.9% on the loan is less than the rate of inflation so they come out ahead that way.

But all of this the arbitrage is likely such a small amount of money anyway, and I think if you really want to save money on transportation the most effective way to do that is to buy a cheaper car and keep it for a long time. I believe that paying cash forces one to spend less on a car, as it's kinda painful to have to save up and then fork over that much money. It's a lot easier to spend more when you just see it as a few extra dollars per month for however long on a loan.

Another thing I realized when I bought my wife's replacement car about a month ago was the dealer add on's and such are just so not attractive when paying cash. I saw these offers for things such as a paint sealant or warranty or whatever, for a few thousand dollars, and it was pretty easy for me to say no thank you to those offers when paying cash. But if one was financing then these add on's might just add a small amount to the monthly payment so maybe one would think why not?
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dm200
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Re: Pay off car loans or not?

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1130Super wrote: Mon Dec 16, 2019 7:46 am
dm200 wrote: Sun Dec 15, 2019 3:58 pm
It could mean putting 20% down on a house though and not paying Pmi, I’d keep the cash and put as much down on house as possible
Here is just one example of a credit union that offers mortgages with little or no down payment - and no PMI is required
https://www.nasafcu.com/personal/mortga ... ge-options
Typically banks & credit unions that offer no pmi with less than 20% down have higher rates that if they were to put 20% down The bank in my town offered a 10% down no pmi loan but the rate was .5% higher for the life of the loan. I Looked up your link and the sites advertised rates requires 60% LTV
I have not done the math, but I wonder what is the comparison of this slightly higher interest rate vs. paying PMI - say over the average life of a home mortgage, which is about ten years? I suspect paying the sightly higher interest rate comes out ahead.
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Re: Pay off car loans or not?

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dm200 wrote: Mon Dec 16, 2019 11:03 am
1130Super wrote: Mon Dec 16, 2019 7:46 am
dm200 wrote: Sun Dec 15, 2019 3:58 pm
It could mean putting 20% down on a house though and not paying Pmi, I’d keep the cash and put as much down on house as possible
Here is just one example of a credit union that offers mortgages with little or no down payment - and no PMI is required
https://www.nasafcu.com/personal/mortga ... ge-options
Typically banks & credit unions that offer no pmi with less than 20% down have higher rates that if they were to put 20% down The bank in my town offered a 10% down no pmi loan but the rate was .5% higher for the life of the loan. I Looked up your link and the sites advertised rates requires 60% LTV
I have not done the math, but I wonder what is the comparison of this slightly higher interest rate vs. paying PMI - say over the average life of a home mortgage, which is about ten years? I suspect paying the sightly higher interest rate comes out ahead.
Obvs it would depend on the rate and the PMI (and the fact that nobody is "average"). But there are many problems with PMI, even beyond the fact that it's throwing away money one could save if one had a higher down payment. First, it requires escrowing. Second, getting rid of it depends on LTV. If the V part falls, the lender may continue to require it even if/when the loan amount has dropped.
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Re: Pay off car loans or not?

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Captain Oveur wrote: Thu Dec 12, 2019 12:10 pm I have 2 car loans: One for a used Lexus purchased in 2017 at 2.7% /60 mos with $13,500 left on the loan at $457/mo.
The other for a Honda Odyssey, new at 2.89% /60 mos with ~$29,000 @ 573/mo.

We have a lot of cash saved up for a future house making 1.8% in ALLY. Right now, the monthly payments are starting to put a little strain on the month-month finances as we had another kid and daycare/diapers/etc coupled with some taking more time off work.

Trying to decide if it's worth paying these loans off early, maybe just the lexus, maybe 1/2 of each...I don't know. The monthly savings would help our budget but we'd lose a chunk of cash (maybe repay ourselves with the money we save each month). There are no prepayment penalties.

Anyone have any advice that might help me see another perspective and make the decision easier? Thanks
I would recommend paying off car loan to eliminate stress on monthly cashflow. If you pay off two loans, you would free up $1k cash flow a month. Something that can be valuable for your situation.
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Re: Pay off car loans or not?

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I disagree with the calls to sell the cars. While a Lexus can be reliable or a grenade, the Honda Odyssey is incredibly safe & reliable. Given this is a family with young kids, both spouses working, the need to drive the kids here & there in an incredibly safe fashion and not have a used van that causes multiple headaches is worth the cost. But....you must make a promise to hang on to the cars long after they are paid off. That Honda will run for over 200K miles. If you're not a handy guy, make sure you have your dealer or local mechanic maintain them. Every year you drive that paid off minivan puts $7K toward something else. More, actually, as car prices will undoubtedly rise. Who cares if the upholstery has a juice stain that never comes out? :happy

This is a high income couple that puts a solid amount away for retirement and college funds. They're already viewing their 401k contributions and 529 funding as essential monthly bills, rather than options. I'd keep paying the monthly car loan and thus have as much cash as possible for a healthy home down payment when the opportunity arises.
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Re: Pay off car loans or not?

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MaryO wrote: Mon Dec 16, 2019 12:36 pm I disagree with the calls to sell the cars. While a Lexus can be reliable or a grenade, the Honda Odyssey is incredibly safe & reliable. Given this is a family with young kids, both spouses working, the need to drive the kids here & there in an incredibly safe fashion and not have a used van that causes multiple headaches is worth the cost. But....you must make a promise to hang on to the cars long after they are paid off. That Honda will run for over 200K miles. If you're not a handy guy, make sure you have your dealer or local mechanic maintain them. Every year you drive that paid off minivan puts $7K toward something else. More, actually, as car prices will undoubtedly rise. Who cares if the upholstery has a juice stain that never comes out? :happy
This is a high income couple that puts a solid amount away for retirement and college funds. They're already viewing their 401k contributions and 529 funding as essential monthly bills, rather than options. I'd keep paying the monthly car loan and thus have as much cash as possible for a healthy home down payment when the opportunity arises.
In my opinion, it is often the case that, once having purchased a certain vehicle, it may be wise to keep that vehicle - even if it may have been unwise to have purchased it.
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Re: Pay off car loans or not?

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dm200 wrote: Mon Dec 16, 2019 12:44 pm
MaryO wrote: Mon Dec 16, 2019 12:36 pm I disagree with the calls to sell the cars. While a Lexus can be reliable or a grenade, the Honda Odyssey is incredibly safe & reliable. Given this is a family with young kids, both spouses working, the need to drive the kids here & there in an incredibly safe fashion and not have a used van that causes multiple headaches is worth the cost. But....you must make a promise to hang on to the cars long after they are paid off. That Honda will run for over 200K miles. If you're not a handy guy, make sure you have your dealer or local mechanic maintain them. Every year you drive that paid off minivan puts $7K toward something else. More, actually, as car prices will undoubtedly rise. Who cares if the upholstery has a juice stain that never comes out? :happy
This is a high income couple that puts a solid amount away for retirement and college funds. They're already viewing their 401k contributions and 529 funding as essential monthly bills, rather than options. I'd keep paying the monthly car loan and thus have as much cash as possible for a healthy home down payment when the opportunity arises.
In my opinion, it is often the case that, once having purchased a certain vehicle, it may be wise to keep that vehicle - even if it may have been unwise to have purchased it.
Yes, particularly with the Honda, because the sharpest dip in car value occurs in the first year. It's not as if they recklessly bought a Maserati.
Plus, this young couple doesn't need the stress of trying to get home from work to pick up the kids from daycare and having car breakdowns because they saved a few hundred $ a month downgrading to an old minivan.
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