Should I pay off my car finance?

kthms83

Hi all,

I'm after a bit of advice on how much I might save if I were to pay off my car finance early. I have a contract purchase plan which I'm nearly 24 months in to. I've paid for cars like this the last few years, renewing every couple of years, and my monthly repayments are £191. When I stopped to think about exactly how much that was per year I thought I might be missing a trick!!

i'm now thinking about using savings to pay off credit agreement so I'll own the car outright, but obviously that's a significant financial outlay, and i'm not sure whether it'll be worth the money saved. Trouble is, I don't know how much money I will actually save, and that's where I was hoping someone might be able to help?! Here are the details:

Amount of credit: £9990.27
Opening balance: 11943.25
Monthly repayments: £191.35 paid on the 8th of the month
Balance owing at 7th November 2015: 9838.40
Effective interest rate: 7.6% per annum
APR: 8.8%

Apologies I don't have a more up-to-date statement. I did get a recent redemption fee (which expired on September 5th) of £7.364.93, so I'm guessing the current redemption fee is around £7200. My question is, how much would I save if I were to pay that redemption fee now?

any help would be gratefully received!

Kevin

AnotherJoe

You don't need to worry about how much you'd save, it's a simple question, should you take what is at most 3 or so percent on a savings account or 8.8%, essentially three times as much, by paying off the loan.

No brainer subject to the following proviso ;

Will this wipe out your savings or leave enough for a buffer in case of events such as redundancy illness etc. As long as you are clear on that point, pay it off.

kthms83

Thanks for the advice! That was my thinking too, it's just hard to see that amount of money go!

What would you say would be an appropriate "buffer" as a rule of thumb? I think i've seen the figure of 3 months wages mentioned previously? I appreciate that is very situation specific and it probably comes down to what you are comfortable with ...

Thanks again

enthusiasticsaver

Yes definitely you would save money on doing this. Make sure you leave enough for emergencies though. Even if your savings are in high interest current accounts or regular savers they will not be earning 7.6%. If in a bog standard internet saver it is a no brainer.

enthusiasticsaver

I actually think initially an appropriate buffer would be £1000 providing you are in reasonably secure employment. You can soon build up your savings again by paying the loan payment each month in there. Aim for 3-6 months eventually.

ViolaLass

Check whether there are any fees for repaying early.

kthms83

Thanks for the advice! I think we have enough of a buffer, I will also check whether there are fees for repaying early.

Thanks again very helpful forum :-)

27cool

A £1000 buffer is nothing nowadays. That could disappear in the twinkling of a car or boiler problem. I wouldn't feel safe without a buffer of at least 6 months wages. (I know that's easier said than done)