Advice for paying lump sums for vehicle finance

[DrJohnZoidberg]

I'd like to place a lump sum into my car loan within the next few months, does anyone have advice on what the best time to do this is and how much I should it put in to make it worth it?

I just about 6 months into my term (with MFC/Nedbank) for a purchase price of R230k. Thinking of putting in somewhere between R50k to R100k in there just not sure what gotchas I should watch out for, etc.

TIA

 

[Tman*]

When? As soon as possible. How much? As much as possible.

This will ultimately reduce the amount of interest you will pay, as well as reduce the finance term.

Only thing I can think off is an early termination fee on your finance, but IIRC its only for finance in excess of R250 000, so you should be fine.

 

[supersunbird]

I'd like to place a lump sum into my car loan within the next few months, does anyone have advice on what the best time to do this is and how much I should it put in to make it worth it?

I just about 6 months into my term (with MFC/Nedbank) for a purchase price of R230k. Thinking of putting in somewhere between R50k to R100k in there just not sure what gotchas I should watch out for, etc.

TIA

Pay it in as soon as possible. Give it a few days and then phone them and either keep the monthly payments the same (thus shorter period) or the period the same (thus cheaper monthly payments)

 

[DrJohnZoidberg]

Cool, thanks guys. I'm going on a 2 week holiday next month, when I get back I will assess the damage and see how much I can afford

 

[ozziej]

My 10c worth (take it don't take the advice)

If you have a car loan or a home loan, don't put it into the car loan. Rather the home loan, the interest savings over 20 years is far greater.
Generally you home will appreciate in value, your car won't.
Unless you need to free up some of the monthly repayment its really not worth doing.

If you are not struggling to make the car payments (and I doubt it if you have R50k-R100k spare) then don't bother, just keep paying and rather use that cash for something else that will make you money.
Even investing it is a better idea, at least that will grow in value.
Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

 

[Hamster]

Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

That R230k, should he stick with normal repayments, is gonna cost him closer to R310k or so over the next 60 months so his "losses" will be far greater if he doesn't pay off the car quicker.

 

[DrJohnZoidberg]

My 10c worth (take it don't take the advice)

If you have a car loan or a home loan, don't put it into the car loan. Rather the home loan, the interest savings over 20 years is far greater.
Generally you home will appreciate in value, your car won't.
Unless you need to free up some of the monthly repayment its really not worth doing.

If you are not struggling to make the car payments (and I doubt it if you have R50k-R100k spare) then don't bother, just keep paying and rather use that cash for something else that will make you money.
Even investing it is a better idea, at least that will grow in value.
Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

Thanks for the input, I don't currently have a home loan though. This does bring up another thing though is that I am looking around to purchase property sometime soon also but I don't have any fixed plans yet. I was also wondering if I should rather keep the money I want to put into the car loan as a deposit for property but then I look at the amount of interest I'll be paying of the full term for the car and want to get sick.

 

[DrJohnZoidberg]

That R230k, should he stick with normal repayments is gonna cost him closer to R310k over the next 60 months or so his "losses" will be far greater if he doesn't pay off the car quicker.

Yes, the full term repayment is over R300k

 

[supersunbird]

My 10c worth (take it don't take the advice)

If you have a car loan or a home loan, don't put it into the car loan. Rather the home loan, the interest savings over 20 years is far greater.
Generally you home will appreciate in value, your car won't.
Unless you need to free up some of the monthly repayment its really not worth doing.

If you are not struggling to make the car payments (and I doubt it if you have R50k-R100k spare) then don't bother, just keep paying and rather use that cash for something else that will make you money.
Even investing it is a better idea, at least that will grow in value.
Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

But what if he uses the savings from reduced monthly payments to up his monthly home loan payments? The car loan will probably have a 50% higher interest rate.

 

[Mike Hoxbig]

My 10c worth (take it don't take the advice)

If you have a car loan or a home loan, don't put it into the car loan. Rather the home loan, the interest savings over 20 years is far greater.
Generally you home will appreciate in value, your car won't.
Unless you need to free up some of the monthly repayment its really not worth doing.

If you are not struggling to make the car payments (and I doubt it if you have R50k-R100k spare) then don't bother, just keep paying and rather use that cash for something else that will make you money.
Even investing it is a better idea, at least that will grow in value.
Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

The counter to this argument is that the car has a higher interest rate, and reducing your installments will free up cash flow immediately (which he can then dump into the bond). Putting a large amount into your bond gives you no immediate benefit, only a long term one. Doing it this way gives you both...

 

[Pakka]

My 10c worth (take it don't take the advice)

If you have a car loan or a home loan, don't put it into the car loan. Rather the home loan, the interest savings over 20 years is far greater.
Generally you home will appreciate in value, your car won't.
Unless you need to free up some of the monthly repayment its really not worth doing.

If you are not struggling to make the car payments (and I doubt it if you have R50k-R100k spare) then don't bother, just keep paying and rather use that cash for something else that will make you money.
Even investing it is a better idea, at least that will grow in value.
Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

Not very good advice because:
1. The the asset underneath the loan doesn't matter (house vs car) and neither does its appreciation or depreciation. The loan needs to get paid regardless of whether the asset increases or decreases in value.
2. A car is generally financed at a higher rate (say 13% for instance) vs a home (say 10%). If you have R100k lump sum, which loan do you think will be better to put the money into? The answer should be the one with the highest rate
3. Investing the R100k instead of paying off a loan will only be beneficial if your investment will return at a rate higher than the loan's interest rate

 

[Hamster]

Yes, the full term repayment is over R300k

A financial advisor will tell you something a long the lines of paying of your bad debt (credit cards etc), making sure emergency funds and stuff are in order and only then look at investing/buying house (and if they are clever and honest, they'd tell you to not buy property **waits for saturnz to tell me I'm wrong** )

Personally, I've paid off a car before which was great because ALL THE EXTRA MONEY!!. The new one I haven't put down anything more than the trade in value of the previous vehicle because I reckon the R2400 pm I'm paying is not that bad and not big enough to warrant tapping into my investments for (a completely emotional decision that is not very financially clever, but at least I know how I'm screwing myself over).

 

[iFan]

Yes, the full term repayment is over R300k

I am also with MFC and did a lump sum today. I had about 38K to pay off when I bought my small bakkie. Made a 10K payment last year, and another today. I just go onto the mfc system, login, get the reference number and bank details and make the payment. Then I email the POP to care@mfc.co.za and ask them to reduce the term.

As far as I know you can either reduce the term, or reduce the monthly payments with the lump sum...

Good luck! Always best to pay off ASAP.

 

[czc]

I thought car loans don't allow you to pay extra. At least thats what I was told.

 

[supersunbird]

I thought car loans don't allow you to pay extra. At least thats what I was told.

Someone lied to you or they are uninformed or you misheard

 

[Jakes147]

I thought car loans don't allow you to pay extra. At least thats what I was told.

If its less than R250 000 then you can pay of the vehicle without penalty, if its more than they will charge you 3 months interest as penalty. However if you give three months notice then you will not pay a penalty.

 

[Thor]

My 10c worth (take it don't take the advice)

If you have a car loan or a home loan, don't put it into the car loan. Rather the home loan, the interest savings over 20 years is far greater.
Generally you home will appreciate in value, your car won't.
Unless you need to free up some of the monthly repayment its really not worth doing.

If you are not struggling to make the car payments (and I doubt it if you have R50k-R100k spare) then don't bother, just keep paying and rather use that cash for something else that will make you money.
Even investing it is a better idea, at least that will grow in value.
Think of it this way, you put R100k into a car, when you try and sell or trade it in in 5 years, you'll maybe get about 30% of the original value. (about R70 000)
So, all the payments you've put in, plus the R100k has been "reduced" to R70k

Very good advice.

 

[Pakka]

Very good advice.

Its still better to put the lump sum into the car loan IF the car loan has a higher interest rate, and then after the car is paid off make the monthly car payments into your bond (up to at least the amount of the lump sum)

 

[Thor]

Its still better to put the lump sum into the car loan IF the car loan has a higher interest rate, and the after the car is paid off make the monthly car payments into your bond (up to at least the amount of the lump sum)

If we have all the information, we will need to see the numbers to give real accurate "guidance"

 

[DrJohnZoidberg]

I am also with MFC and did a lump sum today. I had about 38K to pay off when I bought my small bakkie. Made a 10K payment last year, and another today. I just go onto the mfc system, login, get the reference number and bank details and make the payment. Then I email the POP to care@mfc.co.za and ask them to reduce the term.

As far as I know you can either reduce the term, or reduce the monthly payments with the lump sum...

Good luck! Always best to pay off ASAP.

Very informative, thanks!