Which would be better?

[Anonymous]

We are looking to buy in September. We currently have two auto loans, one of which is on the car we will trade in. The other one we will keep in addition to the new car. We have been working on paying this one down over the last few months and had planned to have it paid off by the time we buy in Sept., but I am wodering if would be a better idea to just pay the minimum on it for the next few months and save the extra we would have been paying on it to have more $$ in the bank when we buy. The balance on the account will be about $2k and the minimum payment is $270. With that and all of our other debts (mortgage, student loans, credit cards with minimal balances) plus the new loan (looking at around $500), our total DTI will be about 24%. So, I am thinking paying it off won't make a signficant difference in our credit worthiness. So, I am wondering which would be the better option:

1. Continue to pay down the 2nd auto loan and have it paid off by Sept.

2. Pay minimums on it for the next few months, save the extra we would have been paying on it to have more $$ in the bank to use at time of purchase, then return to paying extra on the 2nd loan after purchasing the new car to get it paid off just a few months later.

P.S. Once this loan is paid off, we plan to put the entire amount (minimum payment +extra) towards the new auto loan to get it paid off more quickly.

Thanks!

[nathan]

If I were you i would pay off the car and try to sell it, because you will get more than what a dealer will give you.

[Anonymous]

I'm sorry, apparently I wasn't clear. The car we are trading in is not the same car as the one we are deciding to pay off or not. We have a Jeep that will be traded in that we owe about $8k on. The other car is my husband's truck, which he uses to haul stuff often and we can't give up, which we owe $2k on and can either pay off in the next couple of months or save that $$ to have available when we buy and then pay it off after we get the new car.

[ngerasimatos]

Assuming your have good scores, it should not matter which way you prefer to go with this. 

[Anonymous]

There is nothing better than cash in hand.... When a car is paid off the only way to access the equity is to refinance it or sell it. Only would I consider paying it off is if the rate is very high but, it depends on your motivations-goals.