Pay off Car Loan or Put in Home loan

I would definately say the car loan. However, check for early repayment fees. Sometimes you can avoid these by paying $14,999 and leaving $1 in the loan.

As a general rule, always pay the higher interest bearing debt first.

Cheers

Stu

Property & Finance News
at http://www.prosolution.com.au

Well according to the cash flow game, you would maintain the car loan and invest in property or something that generated income. Thus, if that has any credence at all, I wouldn’t be jumping so quick into making such a decision.

It would depend on a range of financial circumstances pertaining to your situation. If you are not into property investment then yes car loan.

If you are into property investment then think carefully and explore your options. If you had a cash positive investment of say + $3000 per year then that money could go to pay off your car loan whilst your assets land value appreciates with capital growth.

Try factoring in your yearly car loan repayments against a cash positive property, plus capital growth and projected future revenues based on rental yields and holding costs.

CashFlow would say use the money as a deposit on a net income generating asset. Obviously the income needs to be such that it justifies the investment. Let the asset pay for your car or boat etc… This then helps free up your disposable income, to help pay your car off even quicker.

The view expressed through this game is that if you forgoe a good investment opportunity and only focus on paying off debt, it will take you longer to acquire wealth. It’s a bit like only paying off your home loan for the rest of your life and not investing at all.

last but not least, the numbers have to work. so do the numbers, do the tax etc…

Hi amni23,

Personally, I’d pay off the car loan @ 9.5% as long as there’s no huge penalty.
You will probably feel better for it too.

Del

Urm as I understand, the whole point about investing is that you invest to make a profit and increase your net wealth both short and long term. In your situation short term profit appears desirable, so you can pay off your debts. If you pay off your car loan and this delays your investment opportunities, it could take you even longer to clear all your debts, than if you invested wisely.

We are of course assuming that you are in a position to borrow more money and that you are able to make a sound investment decision that will yield a net positive cash flow. If this is indeed the case, then it stands to reason that investing could be a viable option. As I said, a sound positive net cash investment will pay off your debts for you.

If however you do not make a sound investment decision, then you could be in trouble. Thus the real risk lies in your ability to make this sound investment decision.

9.5% pa on $15000 = $1425 flat rate interest
is nothing compared to $3000 net cash flow on your investment, plus even a measly 5% capital growth on $100,000 = $5000 flat rate capital growth.

NOTE: you would normally use a compound rate, but both sides are treated the same so the point is clearly demonstrated.

Now if you netted $3000 pa on your investment being $57 per week, you could easily cover your interest bill on your debt and have some left over to reduce the balance. $15000 @ 9.5% pa calculated daily = $27.35c per week

Thus your $57 net cash flow per week would cover this interest and reduce your debt and thus further reduce the loan balance and hence further reduce your interest bill each week.

In the mean time your land value is appreciating at a conservative ( but realistic for your type of cash + investment ) say 5% capital growth pa, being $5000 in year 1

Thus you are achieving several goals at once. You are reducing debt by passive income from your net revenue generating asset. You are also increasing the yearly value of your asset holdings. You are also freeing up your disposable income, to further be used to reduce your car loan even faster.

The lynch pin really hinges on your ability to make a sound investment decision. If you feel this cannot be achieved, then yes pay off your car. But when you have paid off all your debts remember ;

1) you may have delayed or missed an investment opportunity.

2) you will still have to make a sound investment decision, if you then decide to invest at that time.

3) finally there may well be other factors that could impact on the level of risk attached with any decision you make. As mentioned, if you are not comprehensively insured, then this may be one factor impacting on your decision.

But my comment on that would be go get comprehensively insured ASAP. Then go and invest wisely, when you feel confident. Otherwise go do your research and when you feel comfortable, then consider a net cash positive investment solution. If however paying off your car loan improves your ability to borrow to invest then also consider that as an option.

Horses for Courses.

good luck

I stuffed this up in an earlier post, so here it is corrected… I hope.[]
Since we’re on the subject. One wealth creation lecturer, Brad Sugars, promotes the following method of debt elimination in 7yrs. Some people may be familiar with this so correct me of I’m wr….. wr…. wr….. WRONG![]
1) List all debts including the minimum fortnightly payment in order from, the loan with the least number of repayments remaining to the loan with the greatest number of repayments remaining.
2) Calculate 10% of the total of all fortnightly repayments.
3) Starting with the debt at the top of the list, set the repayment to the minimum plus the 10%.
4) Pay the minimum payment on the rest.
5) After debt one is paid off, add what you were paying on debt one to the repayment of debt two.
6) Continue down the list, until all debts are paid off.
Apparently, this will pay off all debts including your mortgage. I wouldn’t include my gearing debts in this, just the bad (non deductable) to start with. I hope someone finds this helpful.