Would you pay off a 0% loan early?

**kork13** · 12-02-2014, 04:35 AM

Yes, I would, and I have (in effect). I previously had a loan at a 1% interest rate, sitting with about $9k left on it. Most of the rest of my money was invested earning 6-10%, or in savings earning (I think) around 2%. For similar reasons as you, I chose to pay off my loan in spite of the super-low interest rate. Sure, it wasn't 0%, but close enough for comparison.

What is the balance of the loan? Say it's about $10k... By paying it off, you're basically losing out on about $115/yr of potential earned interest from keeping the money in savings, so around $400 for the remaining 3.5 years of the loan. Is your peace of mind worth losing the potential for that earned interest? In my mind, it was. It left me with more of my monthly income that I could use to save/invest, which is what I did (I was funneling money toward funding my home purchase the next year), and I was just more comfortable having the loan monkey off my back.

So consider the trade-off, and just make the choice you're most comfortable with. Dollars and cents are important, but so is your psychological/emotional well-being. In the end, it's up to you.

**disneysteve** · 12-02-2014, 05:17 AM

[QUOTE=HappySaver;398637 I don't like debt and I also believe in simplifying things as much as possible. Getting rid of this loan would be one less thing to keep track of[/QUOTE]

There's your answer.

And yes, I have paid off 0% and other ultra-low interest rate loans early. I've taken loans strictly for convenience and cash flow reasons rather than true financial need and just paid them off over my own schedule, not theirs. For example, I bought my car in July 2012 and paid it off over a year even though it was a really low rate on a 5-year loan.

**creditcardfree** · 12-02-2014, 05:18 AM

Yes, I would and have. Peace of mind and simplicity are worth a lot. I'm assuming there isn't a better alternative for the money (i.e. other high interest debt).

**Bal.Leona** · 12-02-2014, 06:40 AM

I did this about a year or so ago myself. In my case it was my only debt. As others have mentioned, if you don't mind losing the interest, and don't have any other higher debt, the peace of mind is worth it.

**Eagle** · 12-02-2014, 08:58 AM

We were paying down some furniture we bought last year at 0% interest. The account originally was 10k for 60 months no interest. We paid it down to 4k this year and will just pay it off with the minimum payments about 6 months early.

We are using the extra money instead to attack our mortgage at 4.625 interest.

**ktmarvels** · 12-02-2014, 09:26 AM

Just to present a different perspective, we didn't pay off DH's 0.9% car loan early.

Our monthly cash flow was fine while having the car payment and we didn't have to tap into our savings to pay it off. It really wasn't that much of a hassle to deal with, I would check Mint and see it cleared, but since it was on automatic payments I didn't really have to do anything.

When we had other car payments, at higher rates, we did pay it off more quickly. That car loan was also our last debt other than our rental property mortgage. Now that we've paid it off, it's like an extra bonus rather than having to replenish savings. Even if we paid off the car using money in our 'car fund' I would feel like I'd need to replenish the car fund.

**JoeP** · 12-02-2014, 09:53 AM

The only time I would ever hold onto a 0% loan would be if I physically had the ALL the cash available to pay it off in full, and it was never accessed for anything else, and that cash was in a safe place earning something, and I had the rigor required to never miss a single payment (or violate the terms and get socked with a Fee).

But due to the risk of one of those conditions going awry, I would likely just pay it off. And next time, I would simply forego the car loan all together and just pay cash. Then the car is mine right away.

**JulieAlbright** · 12-02-2014, 10:35 AM

Whenever I play the 0% credit card offer or special rate financing game I always pay it off about a month early - just to be safe.

**SavingSteve** · 12-02-2014, 02:03 PM

How much is the car worth right now and how much is the balance on the loan? Are you upside down on it? Sometimes rapid depreciation and 60 month loan terms can cause people to owe more than the car is worth. That can be a pretty bad deal if something goes wrong.

Seems like you're uncomfortable with having the loan so why not just pay it off? Or pay it off much more rapidly like maybe 24-36 months instead of 60.

**HappySaver** · 12-02-2014, 02:50 PM

We owe 15k and current blue book value is a couple thousand over that.

I'm not really uncomfortable having the loan. Just not used to having a car payment so we'll probably ditch it soon.

Thanks all.

**MakeAStash** · 12-04-2014, 01:50 PM

Any loan at less than the inflation rate is free money, tax free in fact. Additionally, paying off a loan increases my risk since after doing so it's more of my money involved rather than someone else's. So, I extend loans as long as possible because doing so gives me tax free gains and lessens my risk.

**bjl584** · 12-05-2014, 06:31 AM

It depends what my financial picture looked like at that particular time.

I may pay it off to free up cash flow.

I may keep it if I didn't need the money.

**HappySaver** · 12-05-2014, 02:57 PM

Thanks again to all. The loan has now been paid off and we feel great about it. Cash flow-wise the loan has served its purpose and is no longer needed.

What pushed us over the edge was realizing that the current value of the car was just a couple thousand over what we owe. We're looking forward to getting the title so we don't have to deal with anybody if the car is ever sold or in an accident. That's a nice feeling.

**Zedon** · 12-06-2014, 10:42 AM

I would not pay off a 0% loan unless it was causing me some major inconvenience.

Would you pay off a 0% loan early?