Best way to pay off car loan?

BassMan_2

Hi, Can anyone tell me which is the best way to pay off my car loan, I owe just over £8000 which has another 41 monthly payments left at £197.97p. I recently asked for an early settlement figure, which is £6,905.33p. I would save a total of £1,285 if I paid it off now. Would a low APR loan be the best or are there cheaper ways to get this loan off, I want to pay it off within 2 years.
Thankyou.

Xbigman

I assume you mean you are intending to take another cheaper loan in order to pay this one off? If so can you tell us if there is PPI and what the current APR is? Also, do you know the outstanding balance?

I ask for those figures because its not just a straight comparison between APR's and there might be no real saving in switching loans.
Regards


X

Phoenix79_2

A £7k loan at the Abbey at 5.8% over two years would cost a total of £7420.

DavidHM

I assume you mean you are intending to take another cheaper loan in order to pay this one off? If so can you tell us if there is PPI and what the current APR is? Also, do you know the outstanding balance?

He's got the settlement figure, so I don't see why it would matter.

Essentially, it's in the OP's interests to pay off the maximum payment into the loan each month on the basis that the loan interest will be higher than any interest on savings, so he shouldn't be looking at any third party savings providers unless he needs flexibility to pay a lower than average payment some months over the repayment period.

By increasing the monthly payments, there's no tax liability for the interest saved (as there would be in any amount beyond the ISA limit) plus the balance is reducing more quickly, thus reducing the amount of interest charged on the outstanding element of the loan.

The only exception would be if the loan were taken out when the OP's credit rating was much better than now and so any interest rate that could be obtained would be roughly 2/3 more than that on the current loan (beacuse he's shortening the repayment period by about 40%).

Edit: obviously if there is cash, or a super balance transfer available (see the stoozing forum) then that might be cheaper in terms of raising the finance.