Car loan and savings and monies

[Hanakuso]

Basically I have a car loan and saving up money for a house. Should I focus more on one or the other right now? Car loan interest rate is 2.8%. As of right now I'm just paying the required monthy payment and the rest in my savings acc. Interest rate on my savings account is extremely loan.

Btw I don't have to pay rent if that matters

[cnk]

When buying a house and seeking a mortgage, they will look at your debt to income ratio as well as your earnings, etc. Personally, I would pay off the car first before buying a house. With the purchase of a house comes a lot of additional expenses that you may not think of and not having to pay a mortgage and car payment at the same time will free up some funds.

[Bobblehead]

Originally Posted by cnk

When buying a house and seeking a mortgage, they will look at your debt to income ratio as well as your earnings, etc. Personally, I would pay off the car first before buying a house. With the purchase of a house comes a lot of additional expenses that you may not think of and not having to pay a mortgage and car payment at the same time will free up some funds.

This.

Pay off your car first, but save up money as you can. Then you can worry about a house payment.

But what do I know? I'm 20 and live at home.

[strat61caster]

If you can pay the car loan off quickly do so, you can save a couple hundred or even a thousand bucks paying it off early, but I was raised on the school of thought that debt is evil and to be avoided and minimized as much as possible.

[suaveflooder]

Originally Posted by strat61caster

If you can pay the car loan off quickly do so, you can save a couple hundred or even a thousand bucks paying it off early, but I was raised on the school of thought that debt is evil and to be avoided and minimized as much as possible.

You are wise one, my friend. We need more people like you.

[n2oinferno]

I'd tell you pay the car off asap. But as always, it depends. Are you looking to buy a house soon and are close to having enough for a down payment? Have you taken into account the extra costs of homeownership? If so, I'd probably start focusing on the house, since mortgage rates are low. Sure you can pay off the car and maybe save a grand or so on interest, but let's say you wait a few years and mortgage rates increase?

Average 30yr loan rate now is 4.19%. For the sake of ease, we're assuming 200k 30yr loan and not making extra payments, if mortgage rates increase half a percent to 4.69 you will pay an extra 20k in interest over the life of the loan. If they go up one whole percent to 5.19, you will pay almost an extra 45k in interest over the life of the loan.

Nobody can specifically really tell you the right direction to go. It's awesome not having debt, but you have to judge for your own personal situation. If your credit or DTI ratio sucks then you might get a crap rate anyway. Then again, you can always refinance for a better rate after you've been in the home for a while, but it'll likely cost you a few grand.

[suaveflooder]

Get rid of the car and finance your home loan for no more than 15 years. Save THOUSANDS of dollars. Profit.

[n2oinferno]

Originally Posted by suaveflooder

Get rid of the car and finance your home loan for no more than 15 years. Save THOUSANDS of dollars. Profit.

Sell the car. Live in a shack paid off in a couple of years. Start buying all of the gold and silver you can. Store your cash in jars buried in the back yard.. PREPARE YOURSELF FOR THE FINANCIAL ARMAGEDDON!



On a more serious note, I'd rather have a 30yr loan because I want liquid cash. If I have to meet a higher payment amount and shit ever hit the fan and put me in a position where I would've been okay with the lower, I'd really be kicking myself. By all means include extra payments and pay that loan off quicker. I have a 30 year but I want it done in 10-15.
I know, save for emergencies and rainy days and all, but even the most prudent person could end up completely destitute if the planets aligned and doomed him for eternity or something..

[suaveflooder]

Originally Posted by n2oinferno

Sell the car. Live in a shack paid off in a couple of years. Start buying all of the gold and silver you can. Store your cash in jars buried in the back yard.. PREPARE YOURSELF FOR THE FINANCIAL ARMAGEDDON!



On a more serious note, I'd rather have a 30yr loan because I want liquid cash. If I have to meet a higher payment amount and shit ever hit the fan and put me in a position where I would've been okay with the lower, I'd really be kicking myself. By all means include extra payments and pay that loan off quicker. I have a 30 year but I want it done in 10-15.
I know, save for emergencies and rainy days and all, but even the most prudent person could end up completely destitute if the planets aligned and doomed him for eternity or something..

Lol. Paying off a house in a 15 year time vs 30 (depending on price of course) will probably save you enough to buy at least one or MORE cars prices at FRS prices in cash. Wow, what a crazy thought. Wait for something? No!! YOLO right? Who cars of you haven't funded retirement accounts or aren't saving! You're enjoying life, right?

And gold is a safe investment but hardly a profitable one. It's going up at a little more than 2% on average. Many better options.

Statics tell me that no matter how good your intentions are, you will not pay your house off in 15 years if you have a 30 year loan. I am rooting for you.

Having cash on hand is great, but if you haven't balanced your life so that you are able to save and invest, you are probably doing something wrong.


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[Luke]

"Pay now or pay later." However, replace "pay" with "sacrifice".

You can buy plenty of things now, but you'll have to sacrifice later in the form of debt. On the flip side, you can sacrifice now by living below your means, saving/investing, and it will pay off later.

[Luke]

Originally Posted by n2oinferno

On a more serious note, I'd rather have a 30yr loan because I want liquid cash. If I have to meet a higher payment amount and shit ever hit the fan and put me in a position where I would've been okay with the lower, I'd really be kicking myself. By all means include extra payments and pay that loan off quicker. I have a 30 year but I want it done in 10-15.
I know, save for emergencies and rainy days and all, but even the most prudent person could end up completely destitute if the planets aligned and doomed him for eternity or something..

You can usually get a better interest rate on a 15 vs 30. Yes, the 15 will be higher, but not double. If disposable cash is needed, it's better to buy a cheaper house using a 15 year loan vs a more expensive house on a 30 year note.

With that said, I opted for the 30, due to not being really financially savvy at the time. I wish I could do it over, but still, barring a catastrophe in the next couple of months, I will have paid off the mortgage in 5 years, so it didn't hurt as much as if I had kept paying for the entire 30.

[n2oinferno]

No, it won't double, of course. When I bought my house my salary was about 40% less than I make now and rates at the time meant my house payment would be 50-60% more than my minimum payment now. At the time I didn't have as much disposable income and we went with the 30. No regrets there. Average rent price is almost the same as my minimum mortgage payment, so going with a house over renting an apartment and just giving our money away to a rental company was sort of a no-brainer. Of course there are extra costs when it comes to homeownership, but supposedly the value of my house has already increased 10-15k in the past three years. That won't happen with a rental.

[bakerr6]

I'm a financial planner. What everyone is saying is exactly what you do not want to do. Not only is debt/income ratio taken into consideration with a mortgage, but you have other variables which were not covered here. You need to have a decent down payment. I would hesitate to pay off your car at that interest rate. It's not even indexed for historical inflation at that rate.

If you think about it this way, the dollar you have today is worth more than what that same dollar will be in a few years.

My suggestion to you would be keep about 3-6 months of liquid cash for emergencies, continue to pay the normal payment on your car loan, and invest the rest.

What is your timeline on buying the house? Depending on that would tell us what the best thing to invest in would be. Stay away from mmkt accounts and even if you get a cd that's paying 2-3% (I would never suggest to invest in one at these rates) you could still protect the money well.

Save the money you were going to use to pay down the car as a down payment. More than likely, your home interest will be higher than your car loan. Always pay downy our high interest debt first and work your way down from there.

[bakerr6]

Also in terms of the 15 vs. 30 year loans, I would say not one is better than the other. It all depends on the situation. The variance in APR is hardly noticeable, and in most cases it makes more sense to go with the 30 year, because of the unforseen expenses in the future. If you can pay it off in 10-15 years, then congrats. The reason 30 years is available is because most people are buying their first home at 30-35, which would put you right at retirement age when it's paid off.

I can tell you most clients I work with still do not pay off their home before they retire, as they tend to upgrade throughout their lifetime (job, family etc.).