Should I Pay Off My Car Finance?

MrMojoRisin

Hi everyone, this is a first post so please bear with me.

I have read through the 'Money Makeover', 'Repay Debts or Save' and several threads on the forums already, but it's a bit of certainty and extra advice that I am after.

Last year I took out finance to buy a new car from a second hand dealership. The car is fine and runs well, is what we want/need as a family and is affordable, there are no issues regarding me making the monthly payments.

I believe the deal is a HP and I have just over 3 years, or 37 months, worth of payments still to make.

My credit report shows the outstanding balance to be just under £5,500. The remaining montly payments I would have to make total just under £5,000. I have been on the finance company website today and found I can have a settlement for just under £4,200.

I don’t have enough savings to pay all of this settlement, but could muster up enough to add to my savings in order to do this (through family, not further loans I might add)

My question to the forum is should I use my savings/extra money to pay this settlement or not? I can reduce my overall spend on the car by paying the settlement but it means I'd have no savings, although I would have more money free per month to then save. Or do I keep paying monthly, even for a little while, and keep my little savings pot?

Thanks.

Herzlos

What's your credit history like?

If you'll find it easy to get a loan in future, then you're probably better paying off this one with savings. If you do need money in the future that would be satisfied by savings, you take out the loan and are no worse off than you are now.

If you're unlikely to get considered for a loan in future, try and keep some savings. Will your car finance allow you a partial payment (say, 50% of the settlement figure) in exchange for a reduced payment term? If you can knock 18 months off the term you'll still save a lot of money.

Syman

If i read your post correctly.

You have £5500 to pay over 37 payments ( approx £150/mth)
paying off the Settlement fee is £4200 saving you £1300.

How much do you need to borrow to make up the shortfall?

Personally i would try to save up for the shortfall in the first instance then get another final settlement fee once i could cover without "borrowing" from others ( borrowing from friends and family, in my experience, can be fraught with problems

MrMojoRisin

Herzlos

My credit history is good. I have never missed any repayments on any loans or finances I've had in the past and the mortgage is always paid. I'm not anticipating any major spends in the short/meduim term future although knowing my luck...I can make a partial payment as a lump sum although the website didn't allow me to make a calculation based on this information.

Syman

You've pretty much read that correctly. I'd need roughly another £1,000-£1,500 to make up the shortfall.