@Anonymous wrote:
Lots of advice, lets take a look at it.
1- DO NOT MAKE ANY PAYMENTS OVER THE AGREED AMOUNT UNTIL YOU HAVE CHECKED THE TERMS OF YOUR CONTRACT FOR PREPAYMENT PENALTIES OR FEES.
It is very important to check that out.
2- Do not make any over payment unless you have a "reasonable" savings set aside, and then set aside at least a month or two of car payment as well.
Why?
Simple: car loans are not like minimum credit card payments where if you over pay one month the next month you pay less. Have a $350 month car payment due on the first, pay them $1050 on FEB first be short MARCH 1ST and guess what you are late!!!!
This ensures your ability to pay with an unexpected hardship or incident.
3- Your car payment is reasonable- I would set up your savings more to help you through bad times.
4- Paying off your car loan or credit is a personal decisiojn, there are advantages to both only you know which direction best serves your needs. Without knowing your credit situation I would say car payment since it will pay it off faster and eliminate a monthly payment. but again i do not know your credit situation.
.
All very good points. In general, the better the borrower's credit history was, the less likely it is that the loan will include a prepayment penalty clause; none of my car loans has ever had any such clause. There are several reasons why "prime" loans tend not to have penalty clauses while "suprime" ones do. First, lenders know the "prime" borrower is more likely to have other options, and to know what to look for in a contract: if any lender had offered me a loan with a prepayment penalty clause I would have taken my business elsewhere. Second, among those who take out subprime loans, those who manage to improve their credit to the point where they could refinance into a lower rate loan are precisely those the subprime lender wishes to keep in order to compensate for the high default rates among those who don't get their financial houses in order. Many people don't realize from the perspective of the lender on a fixed-rate loan there are two types of risk: default risk and maturity risk: if a higher-than-expected fraction of borrowers refinance out of high-rate loans that means the lender gets less interest than expected.
Assuming there isn't a prepayment penalty, then when looking at where to put extra cash you need to think about two issues: risk-adjusted return and cash flow liquidity. Few investments will pay an interest rate equivalent to what your debts cost, and those that do are high-risk investments while debt repayment is effectively a risk-free investment. So you should pay your highest-rate debt first, then your lower-rate debt, etc. However, you should not put so much cash into debt repayment that you risk having too little cash in case of emergencies.
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