Car Loan

L

Lilo Lil

Guest
Hi - have a car loan of about 9,000. The car is a 2004 ford focus which I paid 15,000 for. I pay 310 EUR each month on this loan at APR of about 10%.
I get a bonus every 3 months with work - should I pay my loan off with my next 3 bonuses or should I put this into my mortgage ( have a variable mortgage which I have started making some overpayments on - deducting these from the capital amount).
I have always thought that paying off a car loan is not wise as it is a depreciating asset. But my parents were saying why not pay off the car loan as am paying 10% on it - the mortgage is only 3.35%. My argument is that at least my house had increased in value - my car has not. Help!
 
As a rule of thumb, you should always pay off your most expensive loans first. So, your parent are right! Also, paying money into your mortgage does not always make sense. It depends what stage you are at, how much you'll actually clear etc. If you wan to pay a bit off your mortgage, ask your lender how much interest you will save & if you can knock a few months off the term. You might be surprised at the limited effect it could have, given that you're probably talking about a substantial mortgage - isn't everyone's these days?
 
Paying off the capital element of the mortgage will reduce the term of the loan and interest paid substantially so I do believe this is a good idea.
My concern is paying money into a depreciating asset like a car which I will probably want to trade in for a newer model in a couple of years...
 
Your decision needs to be based on numbers. Its quite simple.
- Paying your car loan off would give you a return of 10% immediately on your money. (you said the loan was 10% apr).
- paying down your mortgage might reduce the overall term but you wouldn't be making anywhere near the 10% return you'd get by paying off the car loan.

Conclusion: pay off the car loan asap. Car loans are a huge moneyspinner for banks. Next time, pay for a car with cash. If you can't afford to, get a smaller or older car until you can. Having money requires discipline and patience.
 
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