I would suggest using your savings to pay off the car loan. After paying off the loan you should be left with $12,500 in savings, which should be sufficient for covering most unexpected expenses you may incur. It sounds as though you could replenish your savings in a year, which should put you farther ahead financially than if you keep the car loan for that period. I used the following assumptions to do some quick calculations:
Savings Interest Rate = 2.5%
Loan Interest Rate = 5%
Monthly Income Available for paying off loan or replenishing Savings = $1,070.09
Based on the assumptions above, if you Pay off your loan in 1 year, and let your $25,000 grow you should have $25,632.21 at the end of the year.
If you paid off your car loan today and replenished your savings at the rate of $1070.09 (the monthly amount that would have been required to pay off your car loan in 1 year) then you should have $25,805.35 at the end up the year.
That is a difference of $173.14, which may not seem like very much. It would, however, be a decent return for basically doing nothing. I suppose the decision comes down to if making an extra $173.14 over 1 year outweighs any worry that cutting your savings in half might put you through.
Obviously If your savings or loan interest rates are higher the difference would be more. Also, this assumes that each month you put the same amount of money into savings that you would have put towards paying off your car loan. I can see where being motivated to put the money into savings might be more difficult than being motivated to pay off a car loan. If that is the case for you, perhaps keeping the car loan makes more sense.
I threw those numbers together quickly, so if anyone notices any mistakes please feel free to correct me.
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