Should We Pay off Our Car Loan?

The Federal Reserve just cut interest rate again and banks will soon, if not already, follow suit to lower their savings accounts’ rates. And according to some experts, such as PIMCO’s Bill Gross, the current rate reduction cycle is far from over, which means interest rates from banks are heading no where but south in the near future. With less returns from banks, I am thinking whether to pay off the balance we still owe on our car.

When we bought our Odyssey in 2005, we took a $31,000 5-year car loan at 4.90%. I have never worried about the loan and paying it off early didn’t occur to me since we can get more from our money when the banks were paying us some 5.0+% interests. After more than two and a half years with monthly payment of $650, the debt has been reduced to a more manageable level of a little more than $17,000. As bank deposit returns get less appealing and the cost of carrying the loan exceeds the reward from putting the money in a savings account, maybe it’s time to consider paying it off.

No, I am not going to send them a $17,000 check if I choose to go that route. What I plan to do is getting a credit card that gives me 0% APR for 12 months with no or a cap on balance transfer fee then use the balance transfer money to pay the loan. In this way, I can get another 12 months of interest free period. After doing some homework, I identified a couple of cards for this purpose (FatWallet.com’s Finance forum is a good place to find 0% APR cards):

• Citi Driver’s Edge Platinum Card
• Discover More Card
• Bank of America National Education Association WorldPoints Platinum Plus Card

The one that I am interested in getting is the Driver’s Edge which doesn’t have a balance transfer fee and it could be a card that I may actually use.

I just closed an account early this week. Now it looks like I am about to get another one

*Photo from Homeautoloan.com.

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