topic Re: Should I pay off my car loan asap? in Auto Loans

Should I pay off my car loan asap?

Anonymous — Fri, 12 Feb 2010 12:23:25 GMT

Hello all!

So I purchased a car in October of 2009. I was only able to get the loan with my fiance as my co-signer and my interest rate is very high. In the past year I have cleaned up my credit reports quite a bit. I had many issues with identity theft and it wasn't until just recently that everything but 1 issue has been removed.

2 of my 3 credit cards are paid off and the 3rd will be paid off by mid march. I also have 13,000 in student loans - I am still a student and have been paying the interest only.

My question is, should I refinance and pay my car off this year (I can have that paid off by Aug) or should I refinance and keep going with the loan payments?

I was told in my contract that there is no penalty for paying off early.

Which direction will be better on my scores?

Thanks for the help!

Re: Should I pay off my car loan asap?

Anonymous — Fri, 12 Feb 2010 14:29:48 GMT

What's the amount of your auto loan, interest and monthly payment?

Re: Should I pay off my car loan asap?

Anonymous — Fri, 12 Feb 2010 14:44:21 GMT

295.00 a month, about 8000 left and 18% interest.

Re: Should I pay off my car loan asap?

Anonymous — Fri, 12 Feb 2010 15:49:02 GMT

Paying the interest amount on the loan really sucks so you have to look at it from 2 different views: do you want to save money or improve your FICO score?

1. Save Money

Get rid of that car loan as soon as possible. Refinancing at this point may not even be an option until you get your credit report cleaned up over the next few months. While shopping around for refinancing, if you are denied there will be more hard INQs (depending on if they all fall within a certain date range) on your report which will then further hurt your score.

2. Improve Score

The best thing to do to improve your score would be to eat that interest payment and get the rest of your credit report completely cleaned up. Your student loans should be the last thing you pay seeing as how the interest is tax deductible. Get your credit cards to a PIF state and give your accounts some time to age in good standing. This might take another 8-12 months to dramatically improve your score. In the meantime though, if you have an extra amount of money, it wouldn't hurt to pay more principal each month toward that auto loan. An extra $100 per payment could go a long way.

Re: Should I pay off my car loan asap?

Pushto700 — Sat, 13 Feb 2010 21:41:59 GMT

I would pay it off early. It saves interest. The thing about a simple interest loan (auto loans) is that there is usually no pre-payment penalty (as you noted as well about your situation), and in the long run you will save money that would have built up in interest had you made the regular payment as scheduled.

What it does is cuts the amount of interest as you pay ahead.

Doing the same myself. Owe about 12,000 on a sub-prime auto loan @ 14% (was 570 FICO when I got the car) and by paying 140 more per month, I will have the car paid completely (54 month loan) within 35-38 months (I am at month 18). So I have about 1.5 years left at the current payment with the interest sorely cut down.

-It saves me money

-It keeps me from being upside down (having a car payment worth more than the actual car)

-It reduces the overall debt size, which some lenders will look at when approving new loans (ie- mortgage, especialy post 2008).

-It opens up better rates (I would be considered "prime" by the time I pay the car off mid-late 2011) should I decide to purchase another vehicle, or even a home.

Message Edited by Pushto700 on 02-13-2010 01:41 PM

Re: Should I pay off my car loan asap?

MarineVietVet — Sat, 13 Feb 2010 22:22:11 GMT

@Anonymous wrote:
Hello all!

So I purchased a car in October of 2009. I was only able to get the loan with my fiance as my co-signer and my interest rate is very high. In the past year I have cleaned up my credit reports quite a bit. I had many issues with identity theft and it wasn't until just recently that everything but 1 issue has been removed.
2 of my 3 credit cards are paid off and the 3rd will be paid off by mid march. I also have 13,000 in student loans - I am still a student and have been paying the interest only.

My question is, should I refinance and pay my car off this year (I can have that paid off by Aug) or should I refinance and keep going with the loan payments?
I was told in my contract that there is no penalty for paying off early.

Which direction will be better on my scores?

Thanks for the help!

In my opinion any debt should be paid off as fast as possible. Especially at 18%.

Just don't use savings to do this until and unless you have an emergency fund in place.

Just my 2 cents.

From a BK years ago to:
7/09 TU-742 EQ- 779
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802

You can do the same thing with hard work.

Re: Should I pay off my car loan asap?

Anonymous — Sun, 14 Feb 2010 11:47:12 GMT

Thanks everyone for th advice. I think I am going to pay it off while I can. The interest rate is just overwhelming! Thanks again.

Re: Should I pay off my car loan asap?

StarraeAday1 — Mon, 15 Feb 2010 18:51:44 GMT

I would work on refinancing, but that's just me.

Re: Should I pay off my car loan asap?

Anonymous — Mon, 15 Feb 2010 19:40:08 GMT

Hello paying off your car loan is an great advantage to you. What is the interest rate on the student loan? If you pay car loan off be sure to pay off this student loan asap. I would most definitely eliminate the loan with the highest interest rate first. Once you have paid off car loan apply that payment to your student loan and get rid of both loans. Good Luck.

Re: Should I pay off my car loan asap?

Anonymous — Mon, 15 Feb 2010 19:48:26 GMT

My student loans are at 3-4% and like i said, I have been paying the interest rate on those. Great point about paying off the car and then putting the same amount of payments toward my student loans.

My fiance and I are looking to purchase our first house in 2011. So I suppose my goal for the next 6-8 months is to pay off my car loan, minimize my credit card spending and start focusing more on my student loans, while keeping enough in my personal savings.

Thanks!