I can pay off my car completely (7.92% interest) but it will drain my savings. If I don’t pay it off now, my car will be paid off in 10 months. Thoughts???
Should I use my savings to pay off my car?
byu/Ashtrayangel inpersonalfinance
Posted by Ashtrayangel
4 Comments
How long will it take you to rebuild your savings?
7.92% is high, so I get the urge. But draining your savings for a loan with only 10 months left feels like solving the wrong problem too hard. A paid off car is nice. An empty emergency fund is how people turn one bad surprise into a financial spiral. I’d keep cash on hand and pay it down aggressively instead of going to zero.
I recommend building a car fund, after your emergency fund is fully funded.
Whenever you need another car, use half of what is in your car fund to pay in cash. Don’t pay interest on a rapidly depreciating asset.
How much is left on the car and how much is in your savings? How much is one month of all your expenses?
I recommend keeping one month worth of expenses in savings, and then dumping the rest of it into the car loan. Once the car is paid off, start allocating how much your car payment was (or more!) back into that e-fund until it reaches 6 months worth of expenses.