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Should I pay off my car loan if I have the money and my interest rate is only 2%?
"I've had the money to pay off my car loan for awhile. But with an interest rate at only 2%, I'm wondering if I should.
Is it always a good idea to pay off your car loan early?"
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“It depends. Can you pay off the loan and still have enough money set aside for emergencies? If paying off the loan brings your savings to zero, it’s probably not a great idea.
Think about investing. The idea is whether you can invest the money for more than the interest rate. Let’s say your loan balance is $5,000. If you invest that $5,000 and only make 3% on it, while your loan is just 2%, it makes sense to keep paying the monthly loan amount instead. This is because you’re coming out ahead, and you don’t have to give away $5,000 right now.
If you can make more investing the money than the car loan interest rate, hold off on paying the remaining balance.”
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- Gregory R.
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