Probably the stupidist question in the world.

Coupon-mad

BadgerMan78 wrote: »

OK, a similar point but my circumstances are different and I'd really appreciate your thoughts on this.

I've saved £14k to pay off a loan which, as far as I understand from the paperwork, has no early repayments charges. This is at 8.3% APR (with a rate of interest on the credit of 7.74% APR) and is currently costing me £350 per month with a further 42 months (3.5 years) to go.

However, my mortgage is +.99% with First Direct so has now dropped to 2.49% (or still just 2.99% if they don't pass it back on). My mortgage is only £70k over 19yrs but with the rate so low I'm planning on significantly overpaying each month and have worked out that overpayments of around £400 per month could see this reduce to 8 or 9 years. Would it be of benefit if I were to make one huge overpayment on my mortgage next month of the full £14k I've saved or should I pay my car loan off with this, so that once this is cleared I can focus on making overpayments on my mortgage of around £600 per month?

I can't seem to get my head around which will save me more money in the long term and would really appreciate anyone's thoughts and advice.

Thanks.

Your question seems more straightforward than the OP, as you are just asking 'should I pay off my car loan or reduce my mortgage?

Personally I would say the advice CLAPTON gave in the post above applies in your case. If it were me I would pay off the car loan as it has the highest APR, as long as the redemption figure they give you makes it worthwhile.

You may not be aware of any 'early repayment charges' (as such) but there may be something in the t&cs saying they will roll up all or some of the interest that would have been payable until the end of the original term, and add it to the repayment figure due in the event of early repayment. That can make a huge difference and can be quite a shock!

So my advice is to ask the loan company for a redemption figure, then you will know where you stand, BadgerMan78.

Maybe the OP can come back on this thread over the weekend and tell us a bit more about the £200 (see my previous post, I don't read the OP as such a straightforward question as yours).

KAD

Sorry guys been off line for a few days and a huge thanks for your replies.

I should have given more info, the early settlement figure on my loan is only about £20 more than the total of the 12 payments I have left (interest front loaded i think).
My mortgage is just under £60k, so we were thinking about paying off the loan and over paying the mortgage by £200-£250 per month.
Make any sense?

Coupon-mad

KAD wrote: »

Sorry guys been off line for a few days and a huge thanks for your replies.

I should have given more info, the early settlement figure on my loan is only about £20 more than the total of the 12 payments I have left (interest front loaded i think).
My mortgage is just under £60k, so we were thinking about paying off the loan and over paying the mortgage by £200-£250 per month.
Make any sense?

Just spotted your reply but I am off to bed in a mo and can't decide whether you'd be better off just to use your lump sum to make a capital repayment on the mortgage instead?

Thought I would bump this thread anyway so maybe someone can reply in the morning with some advice...I have been out of the mortgage market in terms of my job, for a few years anyway so others may have more well-thought out advice to give than me.

HTH

dlk

Your settlement figure is £20 MORE than the total of the remaining payments?! I know that could be the case with one or two months penalty interest but most companies won't charge more than the remaining payments.

Anyway there is no way I would pay that loan off. If you aren't getting a reasonable refund of interest to pay it off early you effectively have free money for a year. Put it in savings, pay some off your mortgage etc but no real benefit in paying it off early

RichyRich

Just to throw a spanner into the works. I know general wisdom is to pay off the loan with the highest APR first, but there is only one year left on the car loan (which, presumably, has the higher APR) but maybe 10, 15, 20 (etc.) years on the mortgage, on which interest will compound and accrue over that time such that surely it will be better value to pay off as much of the mortgage as early as possible?

smileypigface

One thing to consider - whether you decide to pay off the car loan and use the extra cash each month to overpay your mortgage or whether you use all the cash to make a one off payment off your mortgage. Is to check the frequency of the interest calculation on your mortgage. Mine is calculated annually so there is no point overpaying each month as that money just sits in my mortgage account until the annual recalculation point doing me no favours whatsoever. You might be better off putting the cash or monthly overpayment amounts into the best interest bearing account you can find and choosing the time carefully that you actually send the cash to your mortgage company.

Not all mortgages are the same, I know, but thought it might be worth mentioning.

Coupon-mad

smileypigface wrote: »

One thing to consider - whether you decide to pay off the car loan and use the extra cash each month to overpay your mortgage or whether you use all the cash to make a one off payment off your mortgage. Is to check the frequency of the interest calculation on your mortgage. Mine is calculated annually so there is no point overpaying each month as that money just sits in my mortgage account until the annual recalculation point doing me no favours whatsoever. You might be better off putting the cash or monthly overpayment amounts into the best interest bearing account you can find and choosing the time carefully that you actually send the cash to your mortgage company.

Not all mortgages are the same, I know, but thought it might be worth mentioning.

Good point.

If the OP chooses to make one large Capital Repayment (CR) - if allowed under the mortgage T&Cs - and makes it clear to the mortgage company that the sum is a 'Capital Repayment' - then I believe some mortgages can be adjusted accordingly from the month following the CR.

That's different than paying a couple of hundred extra each month, as you say smileypigface, which may well not affect the monthly payments until 2010.

FWIW to the OP, I wouldn't want to pay off a loan early if it cost more to do so, than paying it off monthly! So if it were me, I would be asking my mortgage company for figures as to what effect a CR would have on the monthly repayments.