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.
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
https://www.treasurydirect.gov/savings-bonds/i-bonds/
Put 10k here. Make a free $1200 over those three years.
4% annual return is stable but current savings rates are higher
Where are savings rates higher than 4%?
High yield savings accounts are over 4% but their rates fluctuate. I put money in at Ally a few months ago when they were near 3%.
It’s a nice way to park some cash that is easy to get in an emergency.
I bonds are way down since a year ago. You can get over 5% on CDs now
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 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.
If you’re paying 0% it won’t hurt to keep paying it monthly. If you have 12.5k laying around then invest it and make some money. Obviously if you had anything above 0% interest on the loan then paying it off would never be a bad thing.
True
Buying on credit and then using the cash on a savings account is like having cashback on a purchase with an extra step
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.
So im confused are you saying to pay it off now or wait because my loan is 0%
They’re saying wait.
You should definitely wait
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.
Technically, if you just pay off 0% interest loan just because you can, you’re losing money(interest).
It is not only needless but is also an actually worse financial decision.
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
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 liability car insurance (just covers damage for who/what you hit) is cheaper than comprehensive car insurance (also covers you and the car).
Finance companies will usually require you to have the latter through the end of the loan.
If you drop your coverage from comp/collision to liability only, you’re paying less, and assuming more risk - because if you get in an accident, your insurance will not cover the cost of repairing your car (or receiving a payout if it’s a total loss). A 2020 model year car is still worth having comp/collision coverage on.
Glad I wasn’t the only one who thought suggesting liability only ins on a 3 year old car was a silly suggestion.
Really the only reason you’d want to go liability only is if you own the car outright, and the insurance value of the car is very low. If you have a $500 deductible, and your car is only worth $1500, you’ll get paid $1000 on a total loss - which would be just about any accident whatsoever, even one that would leave the car safely driveable. It wouldn’t make sense to make a claim that would only give you $1000, and make you have to buy a new-to-you car and take on payments again, so it doesn’t make sense to pay for that coverage in the first place.
My insurance for full coverage is $97 a month
Not sure if you’re just telling us the amt or of you’re implying it’s too high/low. Sounds about right given the age and cost of your car, without knowing anything about you.
I’m 29, been driving since 2020
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).
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.
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 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.
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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
I’d bite the bullet and keep paying it, it looks good on your credit report to have secured credit with a long repayment history.
Perhaps, my credit score currently is 791
Paying off early and closing the account will drop that for a little while though. I just paid off a personal loan 4 months early and mine dropped by 21 points.
How are you checking your credit score? Frequent hard-pulls of your actual credit score would show up on your credit report and actually lower your credit score on it’s own.
I’ll bet you’re using a service like credit karma which pinky-promises it is properly calculating your credit score. But is it really?
Nah their scoring model weighs different things differently. And over the past decade, I get a sense that they put more value on your open lines of credit themselves over closed credit in order to encourage people to open more credit cards (which is good business for banks, but not the customer).
https://www.cnbc.com/select/credit-karma-vs-fico-credit-scores/
Don’t put too much faith in those services to give you an accurate credit score, and personally I wouldn’t allow them access to my personal information - that’s just another avenue of attack by a hacker if they compromise the CreditKarma mainframes and steal your info.
Damn
Your credit score isn’t about how good you are at repaying your debts, it’s about how reliable you are at generating and paying interest to your creditors. They don’t care if you pay it off, so long as you keep making monthly payments. That’s why you’ll get refinancing offers when you’re close to paying off a loan, they want to keep those interest payments coming. Even if you’re not paying interest now, they still want to see that repayment history.
Many people seem to forget credit scores didn’t exist before 1989. Decades ago a wife would have to get permission from the husband to open a line of credit with a department store.
Credit scores were built to help the banks, not the average person.
Not only that, but getting a mortgage before credit scores sucked. It’s never been easier to get money other than the ninja loans in the 2008 mortgage crash. Loans were only a thing for white people with bosses that liked them, or high status jobs like doctors and lawyers.
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.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.
they are talking about paying it off (early lump payback rather than monthly as agreed)
