Where on DU can one ask questions concerning money matters?

[devilgrrl]

For example. I owe less than $7,000 on my car. If I wanted to, I could pay that off immediately. Should I just pay it off or just continue with the payments?

You tell me.

And thanks in advance. :-)

[One_Life_To_Give]

1. Depends on interest rate and your reserves

The first question should be will you have enough in savings to cover 3-6 months of expenses after you pay off the car? As a rule of thumb this is the amount that is recommended for you to have in reserve for unexpected expenses or loss of employment.

If you have the necessary reserves to keep yourself out of trouble then the question is what is the interest rate of the loan versus the best investment option you would make with the $7000. Chances are it's around 5% minus taxes for a CD and your loan is probably more like 9%.

In that case if there are no pre-payment penalties then paying off the loan would be best.

[MrCoffee]

2. second that, with emphasis on the pre-payment penalties

be very very careful with these. read your loan contract carefully.

[CreekDog]

3. In the age of layoffs, if your interest rate is low, keep the loan and your 7k in savings

Here's a calculator to compute the marginal benefit of paying off the loan versus keeping it and investing the money elsewhere (even if it's just in your bank account).

http://www.hughchou.org/calc/payoff_v_borrow.cgi

It's a little confusing to read, but the 5th and 8th (last) columns are key. For what it's worth, I could not make the thing tell me to pay off a loan unless it was 10% or more.

The guy who wrote the calculator is a bit of a character, but pretty level-headed. His whole website is pretty interesting and there are calculators for everything.