1111mel wrote:
Don't waste your money on interest. If you can send extra $$ each month do it. Even if you double your payment you won't have it paid off until 2010........
Installment loans have little effect on your score. At the pay off of your loan you would lose the mix of credit, but that shouldn't affect you enough to make it worth the thousands extra you would pay in interest.
Your FICO score is NOT worth the extra $ you will spend in interest.
Message Edited by 1111mel on 05-18-2008 10:09 PM
Of course this assumes the OP has no other debts and has maxed all of his/her investments for the year. Pay off loan only makes sense if you having nothing to pay off or invest at a higher APR.
If historically you have a retirment account that has earned 8% and a loan at 7% paying off the loan while not puting money aside in retirement account "costs you" 1%. Everyone's situation is different but I would look at it this way. Pay debts in order they will help your OVERALL NET WORTH.
1) Pay off high interest debts (cc, lines of credit etc)
2) Max retirement accounts (IRA can save you on taxes, Roth IRA earns tax free, most 401K have matching funs = free money).
3) Insure you have sufficent savings to not need to use high APR credit cards. Most experts recommend 2-4 months worth of savings. Keep it somewhere stable like money market account.
4) Add to investments paying higher than your installment loans (in this case car @ 7% APR it would make sense to invest anywhere long term return is 7.01%+
5) Pay down long term loans (auto)
Two places it rarely makes sense to pay off early are mortgage and student loans. Both are tax deductible. So a mortgage or SL at 6% really is only costing you 4.5% (if in 25% income braket) after taxes. For 99.9% of people they can find investments and/or other debt which improve net worth by >4.5%.
