Pay loan off or keep the saving

Rockash

Hi all,

I have a car bank loan of £7500 which I re-pay monthly. However, I now have £6000 in my savings hence I can essentially pay off a big chunk of the loan. But all that would do is reduce the duration of the loan but wont reduce the monthly amount. Thus, I cannot make my mind up if I would benefit more by keeping my savings for a rainy day or pay off the loan.... Please help anyone......... Thanks in advance........

Rockash

kindofagilr

Could you save the rest needed soon? If so I would request a settlement figure and pay it off.

Rockash

Thanks for the response..

Well, I can save the rest in next 3 - 4 months I would say so... But I remember reading somwhere that Martin's advise was always to get rid of the loan... I'm in such a dilemma.....

CLAPTON

what's the APR of the loan
whats the interest rate on the savings

Rockash

APR is 5.9% and the half the savings is in ISA and the rest in an ordinary savings account. My concern being if i pay the loan off, I do nto have any saving. Is my concern valid??

kindofagilr

Rockash wrote: »

Thanks for the response..

Well, I can save the rest in next 3 - 4 months I would say so... But I remember reading somwhere that Martin's advise was always to get rid of the loan... I'm in such a dilemma.....

I would say wait 4 months then, yes Martin says to pay off the loan but you dont have enough to pay it off yet (unless you ask them for a settlement figure and it comes to that amount)

There is a valid conern about using all your savings it depends on how much you can save a month while paying the loan off plus the loan

So say you can save £250 while you pay loan off a month and your loan payment is £250 your savings each month effectivly become £500 a month, does that make sense?

inmypocketnottheirs

This may help you make up your mind.

You have a loan at 5.9%. You have savings earning you a little less than half that.

So effectively, you are borrowing to save up!!

Get my drift?

Rockash

Thanks for ur help guys...

So one of u is saying to pay it off coz I'm borrowing to save up WHILST the other is saying wait for a few more months until I have the full amount??

You both make sense. But I'm just not good in these calculations hence still very indecisive....

kindofagilr

I am only saying wait a few months cos you dont hae the full amount! The bankmay not let you pay a part payment.

Rockash

Well according to the loan T&C, I can pay any lump payment anytime....

djwolf

How long is left on the loan? I think if you make overpayments part of it will be paying the interest, however if you wait a bit longer and then request a settlement figure they take off all the interest remaining (there may still be a 1-2 month interest charge).

It depends how important the savings are to you, personally I do like to have some savings available 'just in case' but generally it does make sense to use savings to pay off debts because in the long run you will save the interest.