Pay off car or not?

[tvguy]

My home!! Left the area after living there my entire life 12 years ago. I always say I want to go back but there’s no way now. The cost of living is unbelievable compared to Nashville. Once you leave Cali you just can’t go back (unless you have an insane bank account or put yourself in major debt) LOL

My neighbor moved 11 years ago to Nashville. He had 23 years in with the Air Force, and 20 years in with the U.S. Post Office so 2 nice pensions and he played the stock market successfully for years. Bought his home in Carmichael for $100,000, sold it for $400,000, bought a bigger house on acreage outside Nashville for under $100,000.

 

[dmc6469]

My neighbor moved 11 years ago to Nashville. He had 23 years in with the Air Force, and 20 years in with the U.S. Post Office so 2 nice pensions and he played the stock market successfully for years. Bought his home in Carmichael for $100,000, sold it for $400,000, bought a bigger house on acreage outside Nashville for under $100,000.

Sounds familiar. Its amazing the difference that there is with the 2 states. In 2004 I sold my condo (1160 sq. ft) in Citrus Heights off Madison and Sunrise for $245,000 (bought it for $91,000 5 years earlier) and couldn’t believe what you could get here. I bought a brand new home that was 1810 sq ft with 1/10 of an acre lot for $130k.

 

[kniquy]

13%.

Yikes!! i didn't know they even had car loan rates that high. Is your credit score low? Even if you didn't want to pay it off, with many banks you can get a used car loan for a much lower rate. I would think you could do a loan to at least lower the rate. I always think - what would Suzi Orman suggest? She is very practical and probably would have had some comments on your spending on vacations and "nice things" after the sale of your house. That money should have been mostly put back into the new home to ensure a lower mortgage or to pay it off in 10-15 years vs 30 years. As for the car with that intererest rate -pay it off and then pay back to your account. Make it automatic so that you are not tempted to spend it on something else. It sounds like you have a spending habit when cash is in your pocket. If you have that extra money from no car payment the you could also pay partially as an extra mortgage payment and part to go into savings. You would be surprised how much just an extra $100/month can decrease time and interest on your mortgage.

 

[Shelly F - Ohio]

How on earth did you end up with a 13% 6-year car loan????? Mine, just bought in June, is less than 3%. I can't imagine having a loan for that much. And then I can't imagine not paying it off if you have the ability!

Usually people with bad credit get stuck with higher rates. And yes pay it off. Why put 13% interest in someone else pocket. If you don't pay it off you are very foolish if you have the money in the bank to pay if off. Which explains the 13% you are paying.

 

[neatokimmo]

That little 800 sf house is a steal. I see a lot of easy updates. I paid 35k for the 1000 sf version of that about 15 years ago. It is a section 8 rental now bringing in $8976 a year (minus about 1k in tax and insurance).

 

[dmc6469]

It sounds like you have a spending habit when cash is in your pocket. .

No, I would not say I have a spending habit!! I work very hard for my money and made a killing on what I sold my house for. I'm single and live payday to payday. All income coming in my house is on me! If I wanted to take one vacation this year why not.

 

[kniquy]

If I wanted to take one vacation this year why not.

Sorry if i offended you. I was just refering to the list of things that you did with the money from the sale of your previous house.

new furniture, new home décor, went to WDW, going on a cruise in January, treated myself to nice things (Michael Kors purses – my weakness).

I have bought, sold and built quite a few homes and have never looked at the equity in my homes as a green light to splurge on things-- I always looked at it as an investment for my future and eventual retirement. Everyone's goals in life are different and you hope that people make the right financial decisions to succeed in life. It looks like you made the right move in paying off the car and you have a decent rate on your mortgage.

 

[hsmamato2]

13%.

13%? pay off the car and pay your account back in that amount monthly!

 

[LuvOrlando]

I don't like to overexpose myself to risk so what I'm doing with a similar situation is make my regular payment from our budget and double it with money from savings. Half the time

Sure it's nice to think to dump it but the thought of draining my cushion is just too big and scary so I compromised instead this way if something awful is around the bend I'll be able to absorb it. I feel better. The key is to put the money somewhere hard to get to so its not siphoned off

 

[hsmamato2]

Actually my 'real' budget board answer would be -go back in a time machine -when buying new house put down 25% into new home, pay off ALL debts (cars etc) with money from previous home sale,build up emergency fund to acceptable level, THEN take that cruise,etc. The correct order for utilizing the sold house funds.... IMHO

 

[manning]

13% ? You are taking a financial blood bath. PAY IT OFF!!!

Assuming you bought a car for $25,000 with no down payment for 72 months the final cost for the car would be $36,133.20. You pay $11,133.20 in interest.

There are auto loan calculators on the web. Google and pick one

 

[JohnneeO]

Agree with paying off high interest debt, especially a 13% Car Loan.

Our current car loan is 0% for 60 months with 0.00 down (40 months in at the moment). Before taking this loan, my research on the risks of 0.00 down car loan found 99% of articles saying the same thing; "Too much risk. Your car loses so much value as soon as you drive it off the lot. If you total the car right away, and your loan was 0.00 down, then you will have to pay the difference between your loan, and the value your insurance company gives you." But there was one article that gave a different perspective, and gave me the confidence to go with a 0.00 down car loan. It framed the idea of having to pay off the difference between your loan value and the insurance payout as just making the "down payment" at a later date, and also as a "down payment" you might never need to make. Of course, our car is now worth more than the remaining loan value, so we are past the time of maximum risk.

Out of all types of interest, mortgage interest is the only type with a tax benefit. If you itemize your deductions, then you can write off your mortgage interest on Schedule A. If you ever need additional funds, a home equity line of credit has the same advantage over other types; the interest is deductible on Schedule A. In that respect, taking a Home Equity Loan to buy a car makes more sense then an actual car loan, as you can deduct the interest. The same thing applies if you have CC debt. Pay off the CC debt with a Home Equity Loan. You will have a lower rate and you can deduct the interest.

I have also considered a 30 year vs a 15 year mortgage. We have a 30 year, with a lower monthly payment, and that makes more sense for us. Rather than refinancing into a 15 year mortgage in the future, and its likely higher monthly payment, I prefer the flexibility of just making additional principal payments on the 30 year mortgage in the months we choose.

 

[bjscheel]

Out of all types of interest, mortgage interest is the only type with a tax benefit. If you itemize your deductions, then you can write off your mortgage interest on Schedule A. If you ever need additional funds, a home equity line of credit has the same advantage over other types; the interest is deductible on Schedule A. In that respect, taking a Home Equity Loan to buy a car makes more sense then an actual car loan, as you can deduct the interest. The same thing applies if you have CC debt. Pay off the CC debt with a Home Equity Loan. You will have a lower rate and you can deduct the interest.

I have also considered a 30 year vs a 15 year mortgage. We have a 30 year, with a lower monthly payment, and that makes more sense for us. Rather than refinancing into a 15 year mortgage in the future, and its likely higher monthly payment, I prefer the flexibility of just making additional principal payments on the 30 year mortgage in the months we choose.

Agree on the 30/15 mortgage thing.

Bad thing about using your Home Equity Loan for cars and cc is that if you run into trouble making payments, now your house is on the line...