When I bought my car in January, I made a tentative plan as to how I was going to pay it off and in what time frame. However, since January, I’ve started making $500+ more per month and have a steady income with which to make plans.
When I had originally acquired my loan I didn’t feel the heat to pay it off. It was better to me to have the debt and be able to get to work then to be debt free and working in a mall. So, I have been plugging away and paying it off at the normal rate. Now, however, I have no interest in remaining in car loan debt if I don’t have to.
Start of Loan
I bought the car for $12,567.90. This is inclusive of all tax. Insurance was paid upfront in cash.
Now (Months Later)
The balance as of today is $9,872. I have made several extra payments on it, over and above my $220/month mandatory payment. I’ve made extra payments from $60 to $700. I’ve so far paid of $2695 in six months. Each month, this averages $449.16.
Terms
My loan is open, meaning I can pay it back at any time in full without any penalties.
It’s currently at 4.99% which is fine. The loan was meant to be paid back in five years, but of course I would like it to be a much shorter time frame than that.
The Plan
I’ve several times tried to make a plan to pay down my personal loan.
At the rate I am going, I’ll have my loan paid off in 1.8 years, or, 20 months. I used to want to almost half that. I wanted to pay it off in one year (from October 1).
This means I’d have to tackle it at a rate of $816/month.
Can I do it?
Probably.
Let’s look at the numbers.
- Most months, including my car loan payments, I have about $500 left over for savings (above and beyond my RRSP and TFSA savings)
- This excludes my extra income from blogging and babysitting
- I have been earning and extra $300-400 each month from the aforementioned side gigs
- My living expenses are relatively low, if I want them to be.
- Total extra income is about $800-$1000/month (excluding some income which is funnelled directly into my RRSP)
Conflicting Money Goals
After crunching the numbers I know that I could do it. I could pay off my loan in a year. But at the end of all of that, what would I have?
$220/month extra? Yes. But that’s not much money. I have three things that I want to do within the next year that will take a big outlay of cash:
- Europe
- Buy a house
- Get married
I don’t think you’re crazy at all! While 4.99% isn’t a huge rate, still I think I’d aim to pay it off as soon as possible. You may get a better mortgage rate–saving you huge money–if that debt is vaporized before you apply. Maybe scale back the spending on the wedding and Europe trip just a bit to make more room for a larger car payment?
Not at all. While 4.99% is a little high for a car loan, it is still a low interest debt. Like Kurt said I would try and get it paid down before you apply for your mortgage because the less amount of outstanding debt you have the more you will have available for your home (which should be most important) and the better interest rate you will get.
no man, I wouldn’t worry about paying it off any faster than you are, delegating your funds to other things at the same time is smart. You have to save for your trip where you don’t have to make extra car payments should you chose not to. Pay it down when/as you feel fit!
You’re not crazy at all. We’re making our last car payment this month and was able to get it done in 3 1/2 years on a five year loan. You have a plan to get out of it and can afford it which are the bigger factors in my opinion.
4.99% is reasonable, and it is better for you to have funds for the wedding / Europe instead of charging a 19.9% credit card! I would clear the balance before applying for a mortgage though.
I don’t think you are crazy. Five percent isn’t crazy and it isn’t great. Just keep in mind not to do this with other things and let it be a slippery slope. Weddings are expensive but if you cut back on that and Europe a little bit maybe you could pay more toward the loan? I know you have self control though so I don’t expect whatever you do will be a problem.
It’s not really crazy. If it makes the most financial sense, then go for it. You are already paying more than the minimum amount.
Nope you’re not crazy for not watning to pay it off sooner. It’s great to be on schedule for paying it off early, but don’t kill yourself to pay it off WAY early, becauase you also have life to live! You want to get married and go to Europe, you want a freaking house which will require a downpayment! It makes perfect sense to not put ALL your extra monthly income towards the car because you need to save for these other things. It’s big in the PF world to not be in debt and to pay stuff off early and if you can that’s great, but we also have to live today, too, and be happy today, too. You’re alraedy well on track, don’t kill yourself and your fun by paying off way too early!
It’s one thing to have a loan over your head and spending with reckless abandon – and another to have other priorities above paying off your car loan. I think you’re being completely sensible!
I don’t think you’re crazy at all! So many people think I’m crazy for getting the Jeep, but I’m happy with my choices.
I agree with the other commenters that it is not a huge issue either way.
Personally I get overwhelmed when I have too many goals at once (see my post today, for example!), so in your shoes, I would want to crush the car debt before turning to saving — but I admit this is more psychological than anything. For me the biggest motivator to get the car loan done would be the future promise of being able to watch my savings balance go up several hundred per month every month.
Keep up the good work, though, you’re doing great.
I agree with most others and think it’s not crazy to put off paying off the car. You are already ahead of the 5 year payoff with the extra payments you made. One thing to keep in mind is that your earnings from blogging and babysitting may increase in time as will your salary from your job. So there is some extra money there that you could use to pay off the car early if you want to. But that is the key right there: what do you want to do?
If you would rather save for Europe and a wedding than pay off the car loan, do that. Personal finance is personal, so what is right for you might not be right for someone else. If the monthly car loan doesn’t keep you up at night and you want to see Europe and get married sooner rather than later, then save save save!!
Whatevs. I think it’s so hard to prioritize all the things you want. $800/mo is crazy painful (speaking from experience) so if you’re not in a hurry to get into that, I don’t blame you at all.
the 5% interest rate hurts a big but like you said, it’s not a credit card so it’s affordable.
I think you’ve done a good job paying extra and I wouldn’t break yourself trying to do more. I definitely think you should make more than the minimum payment on the debt, but it’s worthwhile to put money towards your other goals.
Hell yah you are crazy. You should put off the wedding, move in with 10 roomates to save rent money and work 16 hours a day to get rid of that debt. Sleep, who needs that. Ok, now that I’ve got my sarcastic remark out of the way. I don’t think you’re crazy for not wanting to pay it off early. You have other big life changing events to pay for and it’s better to have a car loan than a loan for a wedding. There isn’t a race to become debt free, so do it on your own schedule and enjoy life as much as you can.
Our car is at 4.99%, but we’re paying other things off first (our HELOC is at 5.99% right now AND has a bigger balance). I’d consider making sure that the wedding and Europe (honeymoon?) are fully funded before throwing too much more at the car. You don’t want to pay off the car only to have to put those expenses on a credit card and end up with higher interest rates there.
Hey, you’re not going into further debt, and you have a plan in place. I don’t think it’s crazy to not pay it down faster. It’s like asking if you should do 50 push ups or 75 push ups per day. The awesome fact is that you are doing pushups instead of eating a bag of doritos.
It’s great to have such a well-thought-out plan. It really puts things into perspective. I think more people should take advantage of low interest rates. Because they’re so low, I too bought a call this year at 2.45%
Hi Daisy. I also drive a Honda Civic and and am working to pay it off. I have a 2.3% rate. I think I paid a bit more for a civic over other cars, however I needed a reliable ride since I travel regularly and have a long commute. For me it has not disappointed. Good luck with your pay down!
I don’t think so. You have other priorities too in life. It’d be insane to pause the planning for other life events for one purchase.
Not crazy, everyone has their own preference. I know that I would have gone crazy if I still had a carloan. I MAY consider one again in the future… if it fits in with the whole of my finances but I get really uncomfortable when i have too many payments to make on everything every month.
I’d say do what feels good for you, my sister has the exact same car btw, spiffy little thing!
Let me be the millionth person to say no, I don’t think you’re crazy.
Our car loan is one of our lowest priorities. We paid off our unsubsidized student loans first (higher interest), then made extra payments to our mortgage (only slightly higher interest rate than our car, but because the balance is obviously so much higher, this is a much bigger expense). I’d also rather be saving for our trips home and funding our retirement accounts than pay the car off faster.
A lone voice of disagreement here…
I think you should pay it off before you buy a house. You will be grateful for the additional cash flow with the unexpected expenses that come up with home ownership, it may increase your credit score to have it paid off if you’re not already maxed on that, and you’re exposing yourself to less risk in the event of an emergency having only the mortgage rather than the mortgage and a car loan.
The wedding and vacation are one-time expenses and so long as you don’t go into further debt to finance them probably won’t expose you to too much additional risk. Personally I wouldn’t put off a wedding but I might put off a vacation trip based on my debt load, retirement savings, and emergency fund size.
I’m of the same stripe as LiquidIndependance… Any money I can borrow at 5% or less is better invested in capital markets. I averaged about a 25% return for the past 4 years. 25% is a better return than a 5% savings.