Automotive

Pay car off pretty early or don't bother?

  • Last Updated:
  • Feb 2nd, 2019 11:12 am
[OP]
Deal Guru
Aug 14, 2007
10547 posts
1767 upvotes
Toronto

Pay car off pretty early or don't bother?

I financed (over 7 years just to make the monthly payment lower) a 2017 Civic Hatchback Sport in Apr 2017. I currently owe (around) $27,000 on it. Right now I have 11K sitting in savings (not including investments/RRSP, etc) and am debating on whether or not to pay it off by the end of 2020 as I probably could.

I have no other debt at all, just the car, would you pay it off early or just ride out the remaining years of the finance? I plan to keep this car until it's no longer driveable as well (hopefully).

Another option I thought of is depending on how the rest of the year goes, pay $15,000 off at the end of this year then ride out the rest of the finance term...

(Payment is $430.18/month). Insurance full coverage (which I would bring down to minimum coverage once paid off) is $1600/year in Toronto)
44 replies
Deal Guru
Jan 15, 2006
14717 posts
12000 upvotes
Richmond Hill
You pay it off early you save interest. Also why in the world would you reduce insurance after you pay it off? Are you talking about liability only? If so that’s a real head scratcher.
Deal Addict
Aug 16, 2009
1252 posts
374 upvotes
Toronto
Always pay off/down your debt as fast as you can... unless you are able to make more from the borrowed money.
Jr. Member
User avatar
Mar 14, 2016
140 posts
139 upvotes
Ontario
michiebaby wrote: Always pay off/down your debt as fast as you can... unless you are able to make more from the borrowed money.
This. If you think you can get more % return on the money by investing it than the current interest rate of the car loan then don't pay it and invest instead. If it's the other way around - pay the debt first!
Qui Tacet Consentire Videtur
Sr. Member
User avatar
Apr 15, 2014
855 posts
751 upvotes
Toronto, ON
If this is a sub 3% loan i would pay the minimum and go the full 7 years
Please respond
Member
Sep 7, 2007
263 posts
115 upvotes
Woodstock
If you have the money saved, pay off the loan for sure. Unless your savings are earning more interest than the loan interest, which I doubt.
Deal Fanatic
Sep 1, 2004
5603 posts
4236 upvotes
If your RRSP isn't maxed out, putting that $11k in there will get you min 20% back as tax savings.

Putting that $11k into the loan will probably net you less return than that.

The next debt to service is mortgage because it's amortized and way more expensive than you car loan.

If you have no mortgage, no sure way to make 6+% on your $11k, pay off the car.

Insurance doesn't change just because your car is paid off. Its a finance and not a lease, you decide what risk you want to cover. If you think you can afford to lose the value of the car due to theft or your fault, don't buy comprehensive.
Deal Fanatic
Oct 6, 2007
8052 posts
4540 upvotes
Kootenays
Xtrema wrote: If you think you can afford to lose the value of the car due to theft or your fault, don't buy comprehensive.
Comprehensive coverage does not cover the value of your car in an at fault accident, collision coverage does.
Deal Fanatic
Sep 1, 2004
5603 posts
4236 upvotes
smacd wrote: Comprehensive coverage does not cover the value of your car in an at fault accident, collision coverage does.
Is there people out there who buy comprehensive and not collision?
Penalty Box
Nov 10, 2018
3205 posts
3483 upvotes
Depends, do you have a T2200 and can write off the interest as employment expenses? If so, that may change things.

Still though, I'd pay it off.
For legal topics and discussions, the opinion, guidance, and thoughts provided are my own and are not considered to be legal advice, in any manner.
Deal Fanatic
Jun 24, 2006
8329 posts
2793 upvotes
CardinalComb wrote: If this is a sub 3% loan i would pay the minimum and go the full 7 years
Car dealers and banks love this mindset. Why? Because few ever actually pay it off. Once they hit 4 or 5 years in and realize they are still paying the same amount for their 5 year old car as they did the day they drove it off the lot, and still have 2 more years to go. They will start looking for one of those "amazing" getting you into a brand new vehicle for the same payment or less "deals", and start the who process over again.
Last edited by Gutty96 on Jan 27th, 2019 2:18 pm, edited 2 times in total.
[OP]
Deal Guru
Aug 14, 2007
10547 posts
1767 upvotes
Toronto
EP32k2 wrote: You pay it off early you save interest. Also why in the world would you reduce insurance after you pay it off? Are you talking about liability only? If so that’s a real head scratcher.
Lower insurance premium but I'll probably keep full coverage anyways.
Deal Fanatic
User avatar
Jul 26, 2007
5019 posts
2651 upvotes
Toronto
How much is the interest on the civic?

If your civic is 1.99% pay off your mortgage or invest in TFSA. If it's 4.99% or higher pay it off.
Deal Fanatic
Oct 6, 2007
8052 posts
4540 upvotes
Kootenays
Xtrema wrote: Is there people out there who buy comprehensive and not collision?
Point is, it's 2 separate coverages. And yes, I do on my 2002 F150 and my motorcycle, a '77 KZ1000. I'm more worried about a collision with wildlife with the truck or theft with the motorcycle than I am about an at fault collision. I'm 45 years claim free of at fault collisions.
Member
User avatar
May 17, 2008
215 posts
143 upvotes
Toronto
As mentioned, put your money into RRSP instead, if you contribute a lot within one single year, your tax return would be huge.

It's one thing to pay interest to lease a car, at least you are going to drive another new car in 3 or 4 years. Paying interest in today's rate for such long term just to borrow money is not a good way to manage your money.

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