Goodnews on the brand new Yaris

If you have credit cards with higher interest rates then it's best to pay them off. If you want to live credit free then you pay off the bills with the highest interest rates first. Interest rates on homes are deductible so it might be OK to carry that out. If it were me I would have bought a low mileage used Camry with cash, that's what I did, and it was 9K. Probably paid a little to much for it but the best used cars I ever bought I paid to much for the low miles, and it's worked out.

I got into this car because I got in financial issues but I am getting it turned around. The 40 mpg is not bad. Once I pay it off I plan to sell it probablly to my folks for my nephew since he will be around driving age. I do plan to get into a Camry again. I loved my last Camry...

"Go Mavz" ...

It is really pretty simple Mavs if you look at it this way. If you are paying more on interest than you are getting by doing something else with the money, then pay it off. If you are paying less on interest than you are getting by doing something else with the money, then keep the loan. Tomes

I read ahead and see you are using this to clear some credit issues...?

If you financed through Toyota, you can make 'front and back' payments. Toyota allows "Principle Only" payments, which means you can slap a few extra $$$ that will cover the principle amount only.

But, CHECK WITH THEM FIRST. Because of losing my job, I was going to take an 'extension' last month, until the young lady that answered the phone told me it carries an extra interest charge for the LIFE of the loan!!!

Depends. If you have another fund to use if an emergency cropped up, then just paying it off makes more sense, bare tacks wise. If, OTOH, you feel more comfortable with that extra few grand at your fingertips, than keep the loan. Or pay of as large a portion of the principal now as you feel comfortable doing - will still save you some $ vs. keeping the loan for its whole original life. Assuming that prepayments are allowed on the loan w/o penalty, Or arrange to pay twice-monthly.

Cathy

Excellent advice on all counts.

You've been given multiple responses already. Allow me to make theirs more concise and I'll augment it with mine.

If you can earn more interest than what you're paying on your loan, then it's best to invest it. If not, best to use it to pay down your loan. I would suggest to not use all of it at once unless you have all of it to pay it completely off. Best to save some for "emergencies".

Making extra payments on MOST loans will save you interest. Obviously, the more extra you pay the better.

Probably pay back the loan early. The average lowest interest rate is about 7% (although you can do better at some credit unions or otherwise look around). The best you can do on an interest rate for a CD or savings account is 6% before taxes.

So you will pay more in interest on the auto loan and in taxes and than you will get from a savings account interest.

Now, if you got a low promotional rate, you might be better off keeping the money in the bank getting interest.

It depends on the interest rate you would get on the money in the bank, the auto loan interest rate and your tax rate. Let's say your auto loan interest rate is 6% and your tax rate is 30%. You can get 6% interest at an internet bank

So compare how much interest you would get from the bank with the taxes you would pay on that interest and the money you would pay towards auto loan interest.

You can also use this calculator (I think - I can't get it to load properly on my computer): or find one on your own at google.

There are two exceptions to this rule: 1) You find out that you are going to die soon and have life insurance from the auto dealer that pays off the auto loan. This should be obvious. 2) If you have other debts that are at higher interest rates than the auto loan, like credit cards, you're better off paying those loans off.

You also have to keep your long-term goals in mind, like retirement and college and consider the big picture. It may make more sense to save for retirement or pay down the mortgage or reduce your cash assets to get more college financial aid (if your kids are about to go to college).

I would check the terms of the loan. Sometimes, you don't save on interest paying back the loan early. So double check before doing this.

Jeff

How would one NOT reduce ones total interest on an auto, that is secured by the title, by paying it off in less than the term of the loan? By federal law discount and add-on loans are not legal, the law requires all secured auto loans to be simple interest loans.

mike

Really?

According to this article, it is still possible to get a precomputed loan or a loan with early payment penalties. However, I believe that they are illegal in most states.

or here: (look up rule of 78)

Perhaps the IRS code forbids these loans. You can find it right next to the list of companies that pay federal corporate income tax. ;-)

Jeff

Your are free to believe whatever you choose, but you will be wrong in your assumption. Such loans have been illegal in ALL states for many years, when used for loans secured by a title.

Look at any secured car loan. Rule of 78 does not apply. We sold thousands of car loans every year the amount due is the principal, plus the interest divided by the term, period. If it is paid early one saves interest, whether you believe it or not, that the way it is. LOL

mike

How about showing us the web page that shows this is illegal? I showed several pages that say they are legal in some states.

In addition, there may be other fees for early payment on the auto loan.

I also see that you removed the links to the articles that I posted.

or here: (look up rule of 78)

And it is funny that this Illinois doesn't say they are illegal on its banking web site.

Jeff