I can pay off my car loan… but should I?

Loans
1

I got a car loan through Exeter Finance when I bought my car at CarMax.

Back then, my credit wasn’t great, so I ended up with an 11% interest rate.

I make $75k a year, and my monthly bills are around $1,000.

I called to check my payoff amount, and it’s $13,500.

I have $20k in savings, and the only other debt I have is a $4k balance on a credit card, but it’s at 0% for the next 16 months.

My car payment is about $400 a month.

Would it be a smart move to just pay off the car now, or should I hold onto the cash?

2

Yes, unless you have a way to invest that $13,500 and get a guaranteed return higher than 11% per year.

If you pay it off, your monthly bills would drop from $1,000 to $600, and you could put that extra $400 toward savings or investments.

3

@Gale
Yeah, that’s what I was thinking. But honestly, I have no clue where to invest or how any of that works. I get calls from financial companies all the time, but it all seems shady.

This is the first time I’ve actually saved money, so I don’t want to lose it.

4

@Emerson
If you want something low risk, consider putting a little into Bitcoin or a Roth IRA. You could also look into learning new skills that can help you make more money.

There are also online communities that teach about business credit and investing, but be careful not to go into debt again.

5

@Avery
Appreciate the advice! I’ve thought about Bitcoin, but the price swings freak me out. I’ll check out the Roth IRA too. Thanks for the suggestions!

6

Emerson said:
@Avery
Appreciate the advice! I’ve thought about Bitcoin, but the price swings freak me out. I’ll check out the Roth IRA too. Thanks for the suggestions!

Yeah, Bitcoin is risky, but if you just put in $300-$500 a week, buy when prices dip, and don’t sell too soon, it could work out long term.

Just don’t go all in or put yourself in a bad spot. A side hustle like YouTube could also be an option.

7

If it saves you a good chunk on interest, I’d do it.

You might also want to knock out part of the credit card balance now before it becomes a problem.

8

Sounds like you’ve got about three years left on the loan.

If you don’t want to drain your savings, you could just add an extra $600 a month to your payments and pay it off in a year instead.

9

Riley said:
Sounds like you’ve got about three years left on the loan.

If you don’t want to drain your savings, you could just add an extra $600 a month to your payments and pay it off in a year instead.

Yeah, that sounds about right. I got the car three years ago, and I think it was a six-year loan.

Do I just call them and tell them I want the extra payment to go toward the principal? I don’t want it all going to interest.

10

@Emerson
Yeah, give them a call and ask how to do it. Some lenders let you apply extra payments directly to the principal, but you want to make sure.

11

@Emerson
There should be an option when making a payment—one part goes to interest, and one part goes to principal. If not, call and ask how to do it. Some lenders make it tricky.

12

Lots of mixed advice here. Here’s what I’d do:

  1. Keep $3,000 aside for emergencies (5 months of expenses based on your bills).
  2. Pay off the car loan. That brings your savings down to $3,500.
  3. Next month, add $500 to savings so you have $7,000 total ($3,000 emergency, $4,000 ready for the credit card when needed).
  4. Start investing. If your job offers a 401(k), contribute 15% of your income.
  5. Open a Roth IRA and put money in that too.

For investments, index funds like VFIAX or SPY are good options. If you want to learn more, check out the personal finance section of this forum—it’s got great resources.

13

@Shan
This is super helpful. I’ve heard of Roth IRAs but never looked into them.

How much interest do those and high-yield savings accounts usually earn?

14

Emerson said:
@Shan
This is super helpful. I’ve heard of Roth IRAs but never looked into them.

How much interest do those and high-yield savings accounts usually earn?

High-yield savings accounts are around 3.5%–4% right now. Good for money you’ll need soon.

A Roth IRA invested in the S&P 500 has averaged 8%–12% returns over time. It’s for long-term savings, so just put money in and let it grow until retirement.

15

11% is way too high. Have you looked into refinancing? A credit union could probably get you a way better rate.

16

Harlem said:
11% is way too high. Have you looked into refinancing? A credit union could probably get you a way better rate.

Wouldn’t that just extend the loan though?

17

I’d keep a solid emergency fund first. Maybe $3,000 saved, then pay off the car, then knock out the credit card.

18

Fallon said:
I’d keep a solid emergency fund first. Maybe $3,000 saved, then pay off the car, then knock out the credit card.

What do you mean by $3,000 saved?

This is the first time in my life I’m not living paycheck to paycheck, so I’m still figuring all this out.

19

If paying it off won’t leave you in a bad spot, I’d do it. Getting rid of that 11% interest is a big win.

20

Skyler said:
If paying it off won’t leave you in a bad spot, I’d do it. Getting rid of that 11% interest is a big win.

Yeah, I still have money coming in every month, so I wouldn’t be stuck. I just don’t want my savings to sit there losing value.