Is it currently worth paying off a loan early.
Discussion
I took out a £17k/ 5 year loan about a year ago to help with the purchase of a car. Re-payments approx £305.
The APR is 3.2% IIRC, outstanding balance is around £14k.
Car is worth roughly £30k according to WBAC.
For reference
Mortgage is currently fixed until Jan 2024 at 1.62%. I make a £100 overpayment each month.
I don’t have any other debt, and make pension contributions through my employer as well as a small amount to a personal pension.
Does it make any sense to pay the loan off early with some cash I’ve got sitting in savings? (S&S, albeit currently allocated to cash). I would still be left with savings if I did.
I can afford the monthly loan payment, and there’s wiggle room within my income for upcoming bill increases (mortgage, energy etc.)
It’s more that the loan repayment coming out each month annoys me, I’d rather have rid of it. I understand that under normal circumstances it would be cost effective to pay it off as I’d save a bit of interest. But in the current climate could it actually cost me to pay off the loan early?
I also have concerns that by paying off the loan, I’m essentially tying up my cash in the car. Which could potentially drop massively in value anytime soon (X3 3.0d).
The APR is 3.2% IIRC, outstanding balance is around £14k.
Car is worth roughly £30k according to WBAC.
For reference
Mortgage is currently fixed until Jan 2024 at 1.62%. I make a £100 overpayment each month.
I don’t have any other debt, and make pension contributions through my employer as well as a small amount to a personal pension.
Does it make any sense to pay the loan off early with some cash I’ve got sitting in savings? (S&S, albeit currently allocated to cash). I would still be left with savings if I did.
I can afford the monthly loan payment, and there’s wiggle room within my income for upcoming bill increases (mortgage, energy etc.)
It’s more that the loan repayment coming out each month annoys me, I’d rather have rid of it. I understand that under normal circumstances it would be cost effective to pay it off as I’d save a bit of interest. But in the current climate could it actually cost me to pay off the loan early?
I also have concerns that by paying off the loan, I’m essentially tying up my cash in the car. Which could potentially drop massively in value anytime soon (X3 3.0d).
One of the usual arguments that sales people give is that let your money earn more elsewhere than the loan costs.
If this isn’t the case then paying it off makes sense.
It’s also worth saying that no loan may give you a feeling of happiness - difficult to value that one !
I wouldn’t worry personally about the depreciation issue as you have that problem either way and arguably in your sub conscious less so perhaps if there was no loan.
Only if you need access to existing savings for other things might be a factor too.
If this isn’t the case then paying it off makes sense.
It’s also worth saying that no loan may give you a feeling of happiness - difficult to value that one !
I wouldn’t worry personally about the depreciation issue as you have that problem either way and arguably in your sub conscious less so perhaps if there was no loan.
Only if you need access to existing savings for other things might be a factor too.
Exacting_checks said:
I took out a £17k/ 5 year loan about a year ago to help with the purchase of a car. Re-payments approx £305.
The APR is 3.2% IIRC, outstanding balance is around £14k.
Car is worth roughly £30k according to WBAC.
For reference
Mortgage is currently fixed until Jan 2024 at 1.62%. I make a £100 overpayment each month.
I don’t have any other debt, and make pension contributions through my employer as well as a small amount to a personal pension.
Does it make any sense to pay the loan off early with some cash I’ve got sitting in savings? (S&S, albeit currently allocated to cash). I would still be left with savings if I did.
I can afford the monthly loan payment, and there’s wiggle room within my income for upcoming bill increases (mortgage, energy etc.)
It’s more that the loan repayment coming out each month annoys me, I’d rather have rid of it. I understand that under normal circumstances it would be cost effective to pay it off as I’d save a bit of interest. But in the current climate could it actually cost me to pay off the loan early?
I also have concerns that by paying off the loan, I’m essentially tying up my cash in the car. Which could potentially drop massively in value anytime soon (X3 3.0d).
Can you not check via your online banking how much you'd have paid in total if you pay now?The APR is 3.2% IIRC, outstanding balance is around £14k.
Car is worth roughly £30k according to WBAC.
For reference
Mortgage is currently fixed until Jan 2024 at 1.62%. I make a £100 overpayment each month.
I don’t have any other debt, and make pension contributions through my employer as well as a small amount to a personal pension.
Does it make any sense to pay the loan off early with some cash I’ve got sitting in savings? (S&S, albeit currently allocated to cash). I would still be left with savings if I did.
I can afford the monthly loan payment, and there’s wiggle room within my income for upcoming bill increases (mortgage, energy etc.)
It’s more that the loan repayment coming out each month annoys me, I’d rather have rid of it. I understand that under normal circumstances it would be cost effective to pay it off as I’d save a bit of interest. But in the current climate could it actually cost me to pay off the loan early?
I also have concerns that by paying off the loan, I’m essentially tying up my cash in the car. Which could potentially drop massively in value anytime soon (X3 3.0d).
I took out a 5-year £10,000 loan in 2015 and it was linked to my online banking. It was easy to get a calculation on any day of what I'd save in interest if I paid off at that point in time.
I’ve gone ahead and settled the loan. Or at least I’ve set the wheels in motion to do so.
I’ll probably split the £300 between my private pension and the mortgage. I’ve still got a decent pot left over in the S&S for emergencies.
Quite a good month really, the GF finished her student loan and also a small loan for her car this month too.
Strangely we’ve got no desire to go and get anything new and shiny, it’ll just get saved / overpaid.
Not very PH. 🤣
I’ll probably split the £300 between my private pension and the mortgage. I’ve still got a decent pot left over in the S&S for emergencies.
Quite a good month really, the GF finished her student loan and also a small loan for her car this month too.
Strangely we’ve got no desire to go and get anything new and shiny, it’ll just get saved / overpaid.
Not very PH. 🤣
Very similar circumstances here. For me, it'll stay, for now anyway.
Personal loan to fund a Lotus (non depreciating)
£350pm Guess what I bought
Around 12K outstanding at 2.9%
I've considered having the extra 350pm in my pocket but in reality it'll just get eaten up. Couple of nights out and meal with the Mrs and that's about it done.
Whilst I dislike having 'borrowing', the actual cost is about £30pm, that's the key figure. I pay more in vehicle tax.
If I were to pay it off, 3 months down the line I'd only start thinking about what car would be achievable with another 'small' loan!
Personal loan to fund a Lotus (non depreciating)
£350pm Guess what I bought
Around 12K outstanding at 2.9%
I've considered having the extra 350pm in my pocket but in reality it'll just get eaten up. Couple of nights out and meal with the Mrs and that's about it done.
Whilst I dislike having 'borrowing', the actual cost is about £30pm, that's the key figure. I pay more in vehicle tax.
If I were to pay it off, 3 months down the line I'd only start thinking about what car would be achievable with another 'small' loan!
Edited by Rick101 on Thursday 21st July 11:07
Gassing Station | Finance | Top of Page | What's New | My Stuff