Should I make extra principle payments on my auto loan or mortgage first?

Should I make extra principle payments on my auto loan or mortgage first?

Postby erin11 » Thu May 12, 2011 8:22 am

I have an extra $400 a month to put toward my debt. I have $10,061 left on my mortgage for my rental property, with an interest rate of 7.5%. I have $16,741 on a new vehicle loan at 3.45%. The vehicle loan just started this month for 60 months. The mortgage was a 15 year mortgage and I believe there are about 6 years left on it. I have no other debt, besides my main dwelling which I owe $20,000.
Any advice would be appreciated.
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Should I make extra principle payments on my auto loan or mortgage first?

Postby preece » Thu May 12, 2011 8:24 am

Make extra payments on your mortgage get that paid off first because that is a lien and can be foreclosed on and loose a lot of money. Make and extra full payment for a total of 13 for the year and you can save 1% on the interest with extra payments you can probley pay off your mortgage in about 4 years instead of 6 years. Get a amortzation schedule from the bank or lender it will show monthly interest and loan principal and pay accordly on what you can afford. Your ! new car if times become tight, so be it. let them repro the car.....Then buy a cheaper used car. Keep the roof over your head, dwelling.
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Should I make extra principle payments on my auto loan or mortgage first?

Postby ulmar1 » Thu May 12, 2011 8:26 am

you better make sure either one ACCEPTS additional principle pmt and they have a spot on their payment coupons that allows for that

I would pay towards the one with teh highest int rate - that will where you will get the best return on your money
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Should I make extra principle payments on my auto loan or mortgage first?

Postby mareo » Thu May 12, 2011 8:28 am

considering the 2 loans have about the same length to go*, pay more on the higher interest rate one.

But I agree with those that say send some of the 400 to savings (100, 200?) until you have a safety net of cash for emergencies (unless you have a good, cheap line of credit - which is what is my safety net if ever needed.) Also have no high interest credit card debt.

* counter example: it does not make sense to pay $1,000 toward a mortgage when you will not be out from under the $500/month payments for another 20+ years. - - when paying extra on things, think of how long it will be until your cash flow improves because you get out from underneath the payment.

- - but definitely the mortgage in this case, because the total debt is lower, and the interest rate is higher.
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Should I make extra principle payments on my auto loan or mortgage first?

Postby tyg30 » Thu May 12, 2011 8:29 am

considering the 2 loans have about the same length to go*, pay more on the higher interest rate one.

But I agree with those that say send some of the 400 to savings (100, 200?) until you have a safety net of cash for emergencies (unless you have a good, cheap line of credit - which is what is my safety net if ever needed.) Also have no high interest credit card debt.

* counter example: it does not make sense to pay $1,000 toward a mortgage when you will not be out from under the $500/month payments for another 20+ years. - - when paying extra on things, think of how long it will be until your cash flow improves because you get out from underneath the payment.

- - but definitely the mortgage in this case, because the total debt is lower, and the interest rate is higher.
Put that money into a savings account. Then when the balance gets to where you can pay off one of your debts, pay of that debt. Reason: Money in a savings account can be diverted to an unexpected emergency. Equity in a car loan or property loan requires you to apply for a 2nd loan (which you may not get). This plan may cost a few hundred $ more but you'll still save some interest.
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Should I make extra principle payments on my auto loan or mortgage first?

Postby creighton58 » Thu May 12, 2011 8:31 am

considering the 2 loans have about the same length to go*, pay more on the higher interest rate one.

But I agree with those that say send some of the 400 to savings (100, 200?) until you have a safety net of cash for emergencies (unless you have a good, cheap line of credit - which is what is my safety net if ever needed.) Also have no high interest credit card debt.

* counter example: it does not make sense to pay $1,000 toward a mortgage when you will not be out from under the $500/month payments for another 20+ years. - - when paying extra on things, think of how long it will be until your cash flow improves because you get out from underneath the payment.

- - but definitely the mortgage in this case, because the total debt is lower, and the interest rate is higher.
Put that money into a savings account. Then when the balance gets to where you can pay off one of your debts, pay of that debt. Reason: Money in a savings account can be diverted to an unexpected emergency. Equity in a car loan or property loan requires you to apply for a 2nd loan (which you may not get). This plan may cost a few hundred $ more but you'll still save some interest.
If you aren't going to save the money (as the other poster suggested) then you should pay off the loan with the highest interest rate. From the numbers you gave me, the rental property should be the right one.
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Should I make extra principle payments on my auto loan or mortgage first?

Postby taima97 » Thu May 12, 2011 8:33 am

Do not pay any debt unless you have a full 6 months worth of living expenses in a savings account or a cd. Every professional will tell you this.
You never know when you will lose a job, have medical expenses not covered by insurance, or have major car repairs.
Then, you can start paying off your highest interest loans first.
You might want to leave tax-deductible loans last
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