Save or Slay in regards to Autoloan??

[Anonymous]

Hey everyone,

I thought this would be a great place to ask, and if not I deeply apologize but...

I have a autoloan of 27k I'm paying off and intitially when I signed it I signed for a 75 month term at a 3.49% apr with the idea of keeping my monthly payments low...

but and thankfully of course...

I got promoted and make quite a bit more now. Is it a good idea to start aggressively paying off this loan then? maybe even to catch up to depreciation? or should I stay at these low monthly payments and build a savings?

To be very honest, although I like the car I have (18 Toyota Camry SE) it is more of a settle from what I truly want so I do want to prepare for the possibility of having it as a trade in with minimal or no negative equity. But is it even a good idea at all?

[Anonymous]

It is never a bad idea to pay ahead on a depreciating asset like a car. If you can comfortably make larger payments just play with the numbers to pay off the car on your own schedule. Plenty of online amortization tools can tell you what you need to pay to meet a set timeline.

[Kree]

I would save for 3 reasons.

1. If you have an emergency your savings will save you from having to pay 8% on a loan, or 18% on a CC.   So you would be 5-15% better off than paying your car loan.

2. If not saving for emergency fund, but for retirement.   Most people can average 7-10% returns by just investing in a index fund. Again 4-7% better than paying your car loan.

3. Loan is already on your report. Paying it off early might:

a. have a negative short term effect due to changes in:

-Your amount of open installment accounts.

-Your balance to initial balance ratio for installment accounts.

b. have a negative long term effect when the loan falls off of your report after closing. (this would be minimal for a thick profile, and it would only make a difference for 2-3 years or however much time is left on your loan +10 years)

Things to consider. There could also be positives involved in paying off your loan, or just paying it down a bit. Also if you prefer safer investment than stocks, you might not earn more than the car's interest rate, in which case paying the loan would make more monetary sense.

[Appleman]

If you currently do not use a budget program, now would be a great time. You have extra available cash flow and can make decsions to really benefit the future.

I am still a fan of YNAB (You need a budget). I was a quicken user for the longest time but YNAB actually allows me to budget. The entire goal is to eliminate debt and you start that by using last months money to make this months payments (or essentially getting a month ahead).

At minimum you should have an emergency fund of $1,000.

Also, take a look at your current interest rates. If any are higher than the 3.5% you may want to pay extra toward those debts first.

As far as another car, up to you and your wants versus needs. What are the future goals you have for yourself?

If you decide to pay additional here is a tool that can help you see how the extra money will help.

https://www.calcxml.com/do/aut05

Glad things are going well for you. Take a moment to decide where you would like to be in 5, 10 even 20 years? 

I certainly wish I could go back and talk to my younger self some days about finances.