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Should I Pay Off Car Loan with Savings?

  • 04-02-2012 4:38pm
    #1
    thehomeofDob
    Registered Users, Registered Users 2 Posts: 1,452 ✭✭✭


    Just a quick one guys - a thread on AH got me thinking about this and whether my thoughts on the subject are correct.

    I currently have just over 3 years left on a 5 year (€6k) loan I took out for my car. It was taken as a personal loan as recommended by the bank loan manager as it was under a certain value. I believe it is a fixed interest rate (specifics I'm not sure of). I'm currently paying about €63 every two weeks.

    I'm also saving roughly 400 every month with a BOI Easy Saver - interest rate is just over 3%. There is currently €2500 in the account.

    My question is - am I better off clearing my car loan when I have the total remainder saved up (probably the next 2-3 months)? I enjoy the comfort of having savings in case of emergency (car breakdown, etc). However I know I'm paying over the odds in interest on the car loan. Any recommendations are appreciated :)


Comments

  • #2
    Jet Black
    Registered Users, Registered Users 2 Posts: 3,845 ✭✭✭Jet Black


    thehomeofDob wrote: »
    I enjoy the comfort of having savings in case of emergency (car breakdown, etc)

    Probably the best reason to keep the money where it is. My recommendation is to increase your payments on the car loan and reduce your payments into your savings. That way you'll clear the loan faster and not be paying the high interest, then you can concentrate on the savings.


  • #3
    A New earth
    Registered Users, Registered Users 2 Posts: 552 ✭✭✭A New earth


    If the loan is at a fixed rate then there will probably a cost for clearing it early.

    Ask for a settlement figure and then calculate if it is more benificial to clear it from the deposits or to keep paying and getting the deposit interest (after deducting DIRT)


  • #4
    3DataModem
    Registered Users, Registered Users 2 Posts: 4,077 ✭✭✭3DataModem


    Jet Black wrote: »
    thehomeofDob wrote: »
    I enjoy the comfort of having savings in case of emergency (car breakdown, etc)

    Probably the best reason to keep the money where it is. My recommendation is to increase your payments on the car loan and reduce your payments into your savings. That way you'll clear the loan faster and not be paying the high interest, then you can concentrate on the savings.

    Be careful to ensure that any overpayment is applied to the current balance, hence saving you interest. This is NOT the case with some fixed-rate loans (as I recently found out, almost to my cost).


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