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Should I pay off my car?

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Anonymous
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Should I pay off my car?

I currently have an auto loan with a credit union and have 36 months left in the loan. The pay off amount is $8000.00 and I have the money to pay it off now. This however would only leave me with $2000.00 left in the bank. My wife and I want to buy a house around December and our credit scores are both in the mid 7's range with all 3 CB's. By december we are able to save aprox. $20,000. The auto payment per nonth is $260.00. Does it make sense to pay it off? BTW we have 2 credit cards with 0 balance and 2 school loans totaling $20,000.00.
 
Thanks for any advice given.
Message 1 of 4
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Anonymous
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Re: Should I pay off my car?

If you want to keep some of your money then pay down your loan to have less than 10 payments left and it won't count in your DTI ratio.

It souunds like you're in a good position over all; good luck with your new house Smiley Happy
Message 2 of 4
Anonymous
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Re: Should I pay off my car?

you didnt say  the interest rate you are paying on car,if it were low ,(close to mortgage rate) I personally  would keep the cash.
Message 3 of 4
Anonymous
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Re: Should I pay off my car?

You didn't say what your household gross income is so I am going to have to take a guess that your DTI is low. Your credit scores solidly prime and you actually have a downpayment so you get + for both of those. Last hurdle would be DTI. Lender like for the mortage to be no more than 31% of your income and your total monthly payments including home loan to be no more than 43%.

If you meet those numbers there is 0 reason to pay off the car loan. You can never have "too much" for a down payment. Also having more money in the bank will help you avoid any emergency between now & Dec which might otherwise eat into your house savings and/or require use of credit cards.

Keep the balance on cards low or $0. You may want to use them once or twice for small purchase so they report at recently used (may give small fICO bump).

Paying off the car loan would be bad idea. It would do little to nothing to improve your score (could even drop it as your credit mix changes) and would tie up valuable capital.

Now sure how expensive of a house you are looking to get but as you know a 20% down payment will allow you to avoid PMI. If the lender covers closing costs (even with higher selling price) you may be able to hit 80% LTV. Even if you can't a large down payment will allow you to get to 80%LTV sooner and kick PMI (which is essentially for the consumer just wasted money).

Message Edited by CreditMizer on 05-01-2008 04:33 PM
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