In case you haven’t figured it out yet, I am way better with numbers than I am with cooking or homesteading. I joke with my mom all the time that I probably should’ve been a doctor, a lawyer, or an accountant instead of a chemical engineer. I would trade it in a heartbeat—but that’s a story for another day.
And before we go any further: I am not a financial expert. I went to school for engineering and have exactly zero professional qualifications to tell you what to do with your money. What I can do is explain why I chose to pay off my car loan early, even though the interest rate was considered “good.”
Meet “The Blueberry” 🚗
We call her The Blueberry—a 2020 Honda Civic Hatchback in electric blue. She’s the first car I’ve ever purchased brand new off the lot with fewer than 50 miles on it.
One of the biggest reasons I chose the Civic over a CR-V was gas mileage. I do a lot of highway driving into the metroplex and average around 35 MPG, which I absolutely love.
Timing Is Everything (and Sometimes Terrible)
I bought the car in February 2020 while working two jobs. One month later…COVID hit, and I lost both of them. Perfect timing, right?
Luckily, I had locked in a 3.9% interest rate, which felt amazing—especially after later seeing rates north of 13% on other vehicles. I also insisted on keeping my monthly payment low.
My goal was around $350/month, but I did splurge a little on:
- Wheel and tire insurance
- PermaPlate (highly recommend)
- GAP insurance
I walked out with a payment of $411.36/month, which was still totally manageable.
How I Approached Payments (and Interest)
There were definitely times I had to scrimp and save to make sure I made a payment, but I always made it. Whenever possible, I tried to:
- Pay early in the billing cycle
- Or stay one month ahead
Why? Because interest accrues on the principal balance. Paying earlier in the cycle means more of your payment goes toward principal instead of interest.
This is a strategy I still use on our truck payments—and I’ll break down the actual numbers in a future post.
Why Pay It Off Early?
For over five years, I made consistent payments. At the end of a loan—especially one with a low interest rate—your payments are mostly principal anyway.
After Christmas, I had about $1,400 sitting in my Chime account. (Free checking and if you use my code, we both get $100, YAY!) After a quick conversation with Boogey, we both agreed: let’s just pay off the car.
But yes—I did consider a high-yield savings account (HYSA) first.
HYSA vs. Car Loan: The Math
The best realistic APYs I saw were between 3.3%–4.2%, with 4% being generous.
- $1,400 at 4% APY = $56/year
- Divide that by 12 months = ~$4.66/month
- Multiply by the ~3 months the money would realistically sit untouched = about $14
Now compare that to:
- Car loan interest rate: 3.9%
- HYSA interest rate: 4%
- Difference: 0.1%
That’s less than $1.40 on $1,400.
BRUH.
Factor in the time to open and manage another account? Not worth it to me. (Although yes, $1.40 is still $1.40.)
The Real Win: Insurance Savings
Here’s the part that actually sealed the deal.
Our auto insurance renews February 4th. By paying off the car:
- I now hold the title
- There’s no lienholder
- I’m no longer required to carry comprehensive and collision
And that is where the real savings come in—but that’s a story (and a breakdown) for another post.
In the End
Paying off a car loan early isn’t always the “right” financial move on paper. But personal finance is personal.
For me, the peace of mind, simplified finances, and upcoming insurance savings outweighed chasing a few extra dollars in interest. And honestly? I really like owning The Blueberry outright. 💙
What are your thoughts? What would you do?
Happy Llama Home 
Leave a comment