$7000 to principal or into a savings account

xinfamousxi · 11-03-2015, 08:39 AM

My plan is to pay down my current Camaro by $7000 by next year so that I have a size able down payment when I trade it in. My dad says I should put the money into a savings account to get interest off of it. My brother says to pay down the car because more of my regular payment would go to the principal. Who is right?

Dallas J · 11-03-2015, 08:55 AM

If your savings account interest isnt greater than the interest rate on the car, then put it into the car.

Things get different if you're putting it into index funds or stocks but doesn't sound like the case.

joemosfet · 11-03-2015, 10:10 AM

Make sure you know the terms of your loan. Some places have early payment penalties, other places will take any surplus money and just apply it to coming months payments (which doesn't actually lower your principal balance.)

cyberbro · 11-03-2015, 11:08 AM

Your Dad!

You will be paying down something that will be falling in price Ask your brother what will happen to that 7k if you total the car tomorrow after you pay down with the 7k? most of it will vanish in smoke.

The saving account is not so much to earn much money, its more about having cash in hand rather then someone else having your money. Just make your payments on the old car and hold your 7k if you really don't want payments wait until you can pay the car off then own it outright but its really not a good money management move its more about peace of mind from payments at that point.

The best rule of thumb with money is you want to rent (or car payments in this case) something that deprecates (like a car) and buy (your 7k) something that appreciates (like gold, interest in a bank or a house and even stocks).

aldaran · 11-03-2015, 07:35 PM

Quote:

Originally Posted by xinfamousxi

My plan is to pay down my current Camaro by $7000 by next year so that I have a size able down payment when I trade it in. My dad says I should put the money into a savings account to get interest off of it. My brother says to pay down the car because more of my regular payment would go to the principal. Who is right?

Depends on what will have the greatest impact. Interest rates on savings account are less than 1%. The average is maybe .30% So, that 7k would only make a whopping $21 and that's for a whole year!

You can get the trade-in value from KBB.com to get an idea of what the dealer might give you for it and subtract that from your loan payoff and see where you stand. Some people will be upside down depending on what they gave down, interest rate, and term.

If you want, PM your remaining term and payoff and I can work some numbers for you. I work for a bank by the way.

DenverTaco07 · 11-03-2015, 08:01 PM

If your planning on trading the car in, why pay it down at all? It will be worth what it's worth regardless of how much you owe on it, just put the money in the bank then take it with you when you buy the new camaro, or write a check or money order etc.

Most savings accounts would net you about 7 dollars on the 7 grand over a year - it's pretty sad.

Obsessed 17 · 11-04-2015, 08:03 AM

7k down will save you around a hundred dollars a month on a 72 month loan. You could take that money and invest in some bond etf or mutual funds paying 4-5%, or use it irresponsibly to start modifying your car ;-). Im saving some and putting some away monthly.

Whis · 11-04-2015, 06:53 PM

Savings account interest rates at most banks are utter, absolute garbage now. Like someone else said, a money market account/brokerage account with 60/40 ratio would be good

drivingagain · 11-04-2015, 07:03 PM

To determine the right route you would need to tell interest rates. You sound young and your interest rate could be in the teen's to twenty something percent. If this is the case call your bank and tell them you want to make a payment on your principle of the loan. If it is simple interests you can pay the principal any time. If it is 4% or lower keep your money in the bank. Sometimes dealers will stretch farther on a higher pay off trade in car to make the deal too.

Mr Twisty · 11-04-2015, 08:11 PM

Ask your bank.....

Chad0311 · 11-07-2015, 04:31 AM

Yeah if were speaking strictly in terms of earning some interest on that money you really can expect to earn not much at all in a standard bank savings account. So it's kind of negligible in that aspect.

Now, if you are comfortable with the payment regardless of whether you drop 7k on the loan to reduce the payments or not and you chose to invest the 7k into your 401k / Roth IRA / Index funds, etc. Than you stand a better chance at earning money from the 7k investment. However, most debt advice will advise you to look at how much interest you are paying on the car loan vs. inflation at the time it's paid off. Basically what that means is, will you profit more from the 7k investment or from paying down the loan faster? That of course depends on how you invest the 7k and what type of interest rate you take on when financing your car.

For example, if I were to finance a 40k car at 1.9%, a fairly low interest rate (which is lower than the standard rate of inflation), and over the course of let's say a 4 year loan you paid $1,000 in interest (I'm just making up a number here but there are plenty of auto loan calculators you can use to determine the exact amount of interest you pay over the life of the loan). Now compare that to if you invested the 7k into an index fund that netted you a return of $1,500 over 4 years. In this scenario you would have made $500 from investing the money rather than paying down the loan faster.

You can obviously do this in another scenario where the reverse is true. Let's say we are a fairly new buyer with limited credit history and we financed a 40k car at 8% over a 72 month loan. Let's make up a number again and say that we will pay $4,000 of interest over the life of the loan vs. investing the 7k into the an index fund which would net you $2,000 over the course of that same 72 month period. Obviously you are paying more interest than you are earning from investing your 7k. So instead, you would want to use the 7k in this case to pay down your higher interest rate loan in order to avoid paying that much interest which would save you money.

Long story short, look at which avenue will net you more money (saved or earned, it's the same thing) and of course your mileage will always vary depending on your personal financial situation.

Hope that helps.

11-03-2015, 08:39 AM	#1
xinfamousxi Drives: Camaro 1SS 1LE Join Date: Sep 2014 Location: United States Posts: 481	$7000 to principal or into a savings account My plan is to pay down my current Camaro by $7000 by next year so that I have a size able down payment when I trade it in. My dad says I should put the money into a savings account to get interest off of it. My brother says to pay down the car because more of my regular payment would go to the principal. Who is right?

11-03-2015, 10:10 AM	#3
joemosfet Drives: 2014 Camaro SS Join Date: Mar 2014 Location: Colorado Posts: 1,006	Make sure you know the terms of your loan. Some places have early payment penalties, other places will take any surplus money and just apply it to coming months payments (which doesn't actually lower your principal balance.) __________________ SOLD: 2014 Camaro Coupe 2SS/RS M6 Blue Ray Metallic, NPP, Nav 2014 Stingray Premiere Edition Coupe #142/500 Z51 3LT M7 Laguna Blue, Magride, NPP, Exposed Carbon Fiber Roof, Carbon Fiber Dash, Suede Wrapped Interior Canceled: 2016 Camaro Coupe 1AK37 2SS Coupe, G7E Garnet Red, BRJ Adrenaline Red Trim, F55 Magnetic Ride, NPP Exhaust, CF5 Sunroof, 56R Gray Split spoke w/ machined face, RN2 LPO Illuminated Bowtie, VYW Premium Floor Mats, W2D LPO Cargo Net

11-03-2015, 11:08 AM	#4
cyberbro Drives: Not a Camaro at this time Join Date: Mar 2009 Location: Long Island, New York Posts: 1,056	Your Dad! You will be paying down something that will be falling in price Ask your brother what will happen to that 7k if you total the car tomorrow after you pay down with the 7k? most of it will vanish in smoke. The saving account is not so much to earn much money, its more about having cash in hand rather then someone else having your money. Just make your payments on the old car and hold your 7k if you really don't want payments wait until you can pay the car off then own it outright but its really not a good money management move its more about peace of mind from payments at that point. The best rule of thumb with money is you want to rent (or car payments in this case) something that deprecates (like a car) and buy (your 7k) something that appreciates (like gold, interest in a bank or a house and even stocks). __________________ Order Status: 2000 8/27/15 3000 9/3/15 2000 9/22/15 (Order changed) 2016 2SS With Auto, NPP, MRC, Nav, Split 5 Spoke Bright Aluminum.

11-03-2015, 08:01 PM	#6
DenverTaco07 Drives: 2017 SS 1LE, 2017 Volt, 2013 Pilot Join Date: May 2014 Location: Colorado Posts: 4,274	If your planning on trading the car in, why pay it down at all? It will be worth what it's worth regardless of how much you owe on it, just put the money in the bank then take it with you when you buy the new camaro, or write a check or money order etc. Most savings accounts would net you about 7 dollars on the 7 grand over a year - it's pretty sad. __________________ 2017 SS 1LE \| HBM \| Vortech V3-Si supercharger (620RWHP and 575ft lbs) \| PDR \| Black Bowties \| Illuminated Front Black Bowtie \| Illuminated Door Sills \| Smoked Tails \| vented seats mod

11-04-2015, 08:11 PM	#10
Mr Twisty Drives: the 2nd amendment home Join Date: May 2008 Location: OK Posts: 14,707	Ask your bank..... __________________ "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." -- Benjamin Franklin

11-03-2015, 08:55 AM	#2
Dallas J Drives: 06 Mitsu Evo Join Date: Oct 2015 Location: Portland Posts: 3	If your savings account interest isnt greater than the interest rate on the car, then put it into the car. Things get different if you're putting it into index funds or stocks but doesn't sound like the case.

11-04-2015, 08:03 AM	#7
Obsessed 17 Drives: 2016 Chevy Colorado Z71 Join Date: May 2015 Location: NH Posts: 149	7k down will save you around a hundred dollars a month on a 72 month loan. You could take that money and invest in some bond etf or mutual funds paying 4-5%, or use it irresponsibly to start modifying your car ;-). Im saving some and putting some away monthly.

11-04-2015, 06:53 PM	#8
Whis Drives: 2016 2SS Hyper Blue Join Date: Oct 2015 Location: Kansas, soon! Posts: 995	Savings account interest rates at most banks are utter, absolute garbage now. Like someone else said, a money market account/brokerage account with 60/40 ratio would be good

11-04-2015, 07:03 PM	#9
drivingagain Drives: 2015 Tiger XCX,2016 Camaro 1SS,LBZ! Join Date: Sep 2015 Location: Palm Coast, FL Posts: 1,311	To determine the right route you would need to tell interest rates. You sound young and your interest rate could be in the teen's to twenty something percent. If this is the case call your bank and tell them you want to make a payment on your principle of the loan. If it is simple interests you can pay the principal any time. If it is 4% or lower keep your money in the bank. Sometimes dealers will stretch farther on a higher pay off trade in car to make the deal too.

11-07-2015, 04:31 AM	#11
Chad0311 Likes V8 powered vehicles Drives: '16 Chevy Colorado Z71 Duramax Join Date: Aug 2015 Location: NC (formerly CA) Posts: 305	Yeah if were speaking strictly in terms of earning some interest on that money you really can expect to earn not much at all in a standard bank savings account. So it's kind of negligible in that aspect. Now, if you are comfortable with the payment regardless of whether you drop 7k on the loan to reduce the payments or not and you chose to invest the 7k into your 401k / Roth IRA / Index funds, etc. Than you stand a better chance at earning money from the 7k investment. However, most debt advice will advise you to look at how much interest you are paying on the car loan vs. inflation at the time it's paid off. Basically what that means is, will you profit more from the 7k investment or from paying down the loan faster? That of course depends on how you invest the 7k and what type of interest rate you take on when financing your car. For example, if I were to finance a 40k car at 1.9%, a fairly low interest rate (which is lower than the standard rate of inflation), and over the course of let's say a 4 year loan you paid $1,000 in interest (I'm just making up a number here but there are plenty of auto loan calculators you can use to determine the exact amount of interest you pay over the life of the loan). Now compare that to if you invested the 7k into an index fund that netted you a return of $1,500 over 4 years. In this scenario you would have made $500 from investing the money rather than paying down the loan faster. You can obviously do this in another scenario where the reverse is true. Let's say we are a fairly new buyer with limited credit history and we financed a 40k car at 8% over a 72 month loan. Let's make up a number again and say that we will pay $4,000 of interest over the life of the loan vs. investing the 7k into the an index fund which would net you $2,000 over the course of that same 72 month period. Obviously you are paying more interest than you are earning from investing your 7k. So instead, you would want to use the 7k in this case to pay down your higher interest rate loan in order to avoid paying that much interest which would save you money. Long story short, look at which avenue will net you more money (saved or earned, it's the same thing) and of course your mileage will always vary depending on your personal financial situation. Hope that helps.

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