For those mac users who are working with financial projections and budgeting, a good financial calculator is a must have. Finkitx from paranzasoft does a very good job.
I used it today to determine if it was better to pay off my car early by doubling payments, or putting that $300 a month into my high yield savings account and letting it earn 3.1%. Turns out it’s better to pay off the car. Total remaining interest on my loan is $867. If I pay it off in 24 months instead of the 49 I currently have left, giving me a just under $600 a month car payment, I’ll save $438 in interest. By putting it into the bank instead, I’ll earn $950 in interest meaning I come out $83 ahead. Considering inflation, that $83 will be worth a lot less in 5 years as well. The only real negative to paying more into the car is that the money becomes far less liquid and would require selling the car, or taking out a loan against the car to get at the money in case of an emergency. Of course, this assumes that the interest rate on the bank account will stay at 3.1% which is pretty unlikely. But rates would have to increase dramatically for me to make up that $355 difference. Unlikely.
Lesson learned: Don’t let compounding interest work against you whenever possible.
FinkitX made it really easy to figure this out. Check it out.