I have a 0% car loan with 21 months to repay a $5,072.00 bal. Payments=$258.00 monthly. I have enough $$ to payoff the loan, but I just refinanced my home which will increase my mortgage $40.00 per month for 3 additional years. Should I pay off my car loan to increase my cash flow? Or, keep the car loan and bank the $$? Or, use the $$ to improve/update my home?


  • 2
    Do you have an emergency fund with at least 3 months of expenses in it?
    – BobbyScon
    Commented Jul 8, 2017 at 20:49
  • 1
    $258.00 per month for 21 months to pay off $5,072.00 is about 7.3% annual interest, not 0%. Commented Jul 9, 2017 at 16:12

1 Answer 1


Should I:

  • pay off my car loan to increase my cash flow?
  • keep the car loan and bank the $$?
  • use the $$ to improve/update my home?

The main benefit of paying off the loan early is that it's not on your mind, you don't have to worry about missing a payment and incurring the full interest due at that point. Your loan may not be set up that way, but most 0% interest loans are set up so that there is interest that's accruing, but you don't pay it so long as all your payments are on time, oftentimes they're structured so that one late payment causes all of that deferred interest to be due.

If you put the money in the bank you'd make a small amount of interest and also not have to worry about funds availability for your car payment.

If you use the money for some other purpose, you're at greater risk of something going wrong in the next 21 months that causes you to miss a payment and being hit with a lot of interest (if applicable to your loan).

My vote:

If you already have an emergency fund (at least 3-6 months of expenses) then I would pay the loan off now so you don't have to think about it. If you don't have an emergency fund, then I'd bank the money and keep making payments, and pay it off entirely when you have funds in excess of your emergency fund to do so.

  • 2
    At 1% interest rate in a savings account, you'd come out ~$40 ahead of paying it off now, not worth the risk, in my opinion.
    – Hart CO
    Commented Jul 8, 2017 at 22:42

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