 Use savings to pay off car loan?
|  Dear
Terry,
I recently bought a new car. I did not do all my homework
beforehand and now I have a big payment each month. What's done is done. The
interest rate on the loan is 7.99 percent for 60 months.
I
have money set aside in a savings account that I could use to pay the car off.
The savings rate is 5.18 percent. Is it worth keeping the savings and paying the
loan each month from that account? Or should I pay the loan off now? We do not
have the cash flow coming in to cover the payments otherwise. I am so upset with
myself for not reading more before the purchase. Please help!
-- Kim
 Dear
Kim,
The interest rate on your loan is not out of line for a 60-month
term, but the larger issue is that you cannot cover the payments from your monthly
income. You don't say whether paying off the car will empty your savings account,
which could be a factor. You never want to leave yourself without financial reserves,
but if you can pay off the car in one swipe, do it. You'll save money in the long
run. And next time, don't sign on for a loan you can't cover.
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If you have a question for Terry, e-mail him at Driving
for Dollars. | 
