Pay off car or save ?

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abandonallhope

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As the title suggests, I am an inch away from being able to finish my vehicle financing with a settlement amount, and the settlement amount is just over R16000 less than the actual outstanding amount. So that's a lot that I score right there.

What would be better to do in the long run, get rid of the debt and start saving from scratch, or continue saving and doing something else with the money like a decent deposit on a house ? I remember people talking about buying cars on house loans etc, and I am totally clueless about this, is this still possible or maybe pay off an existing loan with your house loan and score with much lower interest rate on the house loan ?
 
abandonallhope said:
As the title suggests, I am an inch away from being able to finish my vehicle financing with a settlement amount, and the settlement amount is just over R16000 less than the actual outstanding amount. So that's a lot that I score right there.

What would be better to do in the long run, get rid of the debt and start saving from scratch, or continue saving and doing something else with the money like a decent deposit on a house ? I remember people talking about buying cars on house loans etc, and I am totally clueless about this, is this still possible or maybe pay off an existing loan with your house loan and score with much lower interest rate on the house loan ?
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Pay it off and start saving, you will be better off. And yes, it generally is possible to refinance your mortage and use it to pay off your car loan...
 
If you're that close to paying it off, then you won't gain much (if anything) by settling it now IMO. The best time to dump money into your loan is at the beginning, when the bulk of your payments are interest.
 
Mike Hoxbig said:
If you're that close to paying it off, then you won't gain much (if anything) by settling it now IMO. The best time to dump money into your loan is at the beginning, when the bulk of your payments are interest.
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He's saving 16K.
 
Tim182 said:
Pay it off and start saving, you will be better off. And yes, it generally is possible to refinance your mortage and use it to pay off your car loan...
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+1

Pay off your high interest debt first. You earn very little interest on savings, but pay a lot on cars & houses.
 
R13... said:
He's saving 16K.
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How is he saving 16k by spending 16k?

The settlement amount is 16k, meaning that he is close to the end of the repayment period. Let's illustrate this by assuming that his repayments are 2k per month, so in all likelihood he would have 8 months left (since all the interest would already have been paid for at the beginning). So what exactly is he saving by throwing a lump sum into something, the amount of which he would be paying off interest-free anyway?

If your argument was that he would be saving by dumping a lump sum into the loan at the beginning, thereby reducing his monthly instalments, then that would be valid.
 
Regardless of how much, you are saving interest repayment by paying the car off sooner. I'd definitely pay off the car first. Seeing the extra few thousand per month is most excellent, and adds momentum to the saving process, even if you are starting from scratch.
 
Step 1 - contact your financial institution and ask them for the "real" settlement amount, inclusive of all fees.

If it is indeed R16k less, then pay it off ASAP and begin your savings plan.
 
Always pay off the highest interest debt first. There is not much sense in earning eg. 6% on your savings if you still have outstanding debt at 10% (or whatever) interest. What I would advise though is that you at least keep some savings back for that 'just in case' scenario. You never know when you suddenly land in hospital or whatnot.

Mike Hoxbig said:
How is he saving 16k by spending 16k?
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Read the OP again.
 
Mike Hoxbig said:
How is he saving 16k by spending 16k?

The settlement amount is 16k, meaning that he is close to the end of the repayment period. Let's illustrate this by assuming that his repayments are 2k per month, so in all likelihood he would have 8 months left (since all the interest would already have been paid for at the beginning). So what exactly is he saving by throwing a lump sum into something, the amount of which he would be paying off interest-free anyway?

If your argument was that he would be saving by dumping a lump sum into the loan at the beginning, thereby reducing his monthly instalments, then that would be valid.
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No need for the illustration, read the OP.
 
Yeah I misread the settlement amount as being the same as the outstanding amount :o As you were then.
 
Jola said:
+1

Pay off your high interest debt first. You earn very little interest on savings, but pay a lot on cars & houses.
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Totally agree pay it off car finace is one of the highest
 
Its alway better to pay off a loan when you have that extra free money, rather than saving that money. Credit interest will always be lower than interest on loans. The downside is that whatever you pay in extra, will usually not be available to you again unlike with a flexi bond. That is what put me off a few times when I had extra money to put on my student loan. Lets say the monthly pmt is R500, and I have R1000 extra to pay this month, I can't go and withdraw R500 back next month if I need it. So it really has to be "extra" money.

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I'm also considering using 60% of my savings to settle my car. A 12.5% interest rate for my car is too much. I'm also contemplating cancelling my car insurance after paying off my car so as to save up more money each month, I believe my car (Ford Figo) is at low risk of being stolen or being hijacked :).
 
Back in 2010 there was about 16k left on my car as well. So I decided to pay it off completely its really not that much... Its nice to drive a car around when you know you don't have to pay back loans.

abandonallhope said:
As the title suggests, I am an inch away from being able to finish my vehicle financing with a settlement amount, and the settlement amount is just over R16000 less than the actual outstanding amount. So that's a lot that I score right there.

What would be better to do in the long run, get rid of the debt and start saving from scratch, or continue saving and doing something else with the money like a decent deposit on a house ? I remember people talking about buying cars on house loans etc, and I am totally clueless about this, is this still possible or maybe pay off an existing loan with your house loan and score with much lower interest rate on the house loan ?
Click to expand...
 
Maybe in terms of the overall loan it isn't that much but 16k is a fair whack for most people. Just working backwards (in my head, from memory, using my faulty maths on something that ended a year ago, so I might be quite off here) from my car repayments it was at least a year and a half's interest. If you've got the cash getting rid of that anchor is definitely the way to go. You're never gonna get that rate on any short term investment so you're effectively losing money by saving it.

The only caveat would be whether or not you feel you're adequately covered for any rainy day with regards to the rest of your savings.
 
+1

nexxus said:
Maybe in terms of the overall loan it isn't that much but 16k is a fair whack for most people. Just working backwards (in my head, from memory, using my faulty maths on something that ended a year ago, so I might be quite off here) from my car repayments it was at least a year and a half's interest. If you've got the cash getting rid of that anchor is definitely the way to go. You're never gonna get that rate on any short term investment so you're effectively losing money by saving it.

The only caveat would be whether or not you feel you're adequately covered for any rainy day with regards to the rest of your savings.
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You can also look at it another way. A vehicle is a de-preciating asset. If you pay it off early, you will save the interest but if the vehicle is written off in anything, you would lose more.

My wife's car was written off by some moron in a free ranger. We had just paid it off a year before and yes, we got settlement cash but the difference was 9K amd we still had to buy a new car again anyway.

It depends on your finances and risk.
 
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