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repay or save?
mdowning
Posts: 1 Newbie
Just joined cus I couldn't find the answers to the questions I have.... and if i have then I'm not sure they apply to me; it's all very confusing.
I have a car loan at 18% apr with 1.5 years left, a mortgage with 30 years left at 5.1% and a second loan on the mortgage with 24 years left at 4.8 %. I have no other credit.
I am in what I consider to be a very secure job so I don't think that saving 6 months repayments of debt is the best solution for me. (I could be horribly wrong though I suppose).
What confuses me is the net gain over the term of a loan compared to the money injected; logically I should pay as much as I can into the car loan because it has the highest interest rate, but it is nearing the end of it's life so much of what I pay is clearing the debt. I have worked out that paying the same ammount off my (main) mortgage will save me more in interest than the total ammount of intrest paid with my car loan.
Without spending hours writting complicated spreadsheets to help me to decide I assume that you should pay off debt in the order of interest repayments rather than loan size, because the interest you aren't paying (no matter how small it seems) enables you to repay more on the debt with the next smallest APR?
Another part of me says that nearer to the end the term you are the less point in settling the debt because the damage has been done... Overpaying a debt is taking advantage of reverse compound interest, so the later you act the less you save in proportion to the debt.
If I overpay £1200 into my mortgage now it will reduce my term by 1 year, if I do that to my car loan it will nearly pay it off...... Once it is paid off that means I can overpay on my main mortgage even more per month which is a good thing right?
I'm too confused HELP!
I have a car loan at 18% apr with 1.5 years left, a mortgage with 30 years left at 5.1% and a second loan on the mortgage with 24 years left at 4.8 %. I have no other credit.
I am in what I consider to be a very secure job so I don't think that saving 6 months repayments of debt is the best solution for me. (I could be horribly wrong though I suppose).
What confuses me is the net gain over the term of a loan compared to the money injected; logically I should pay as much as I can into the car loan because it has the highest interest rate, but it is nearing the end of it's life so much of what I pay is clearing the debt. I have worked out that paying the same ammount off my (main) mortgage will save me more in interest than the total ammount of intrest paid with my car loan.
Without spending hours writting complicated spreadsheets to help me to decide I assume that you should pay off debt in the order of interest repayments rather than loan size, because the interest you aren't paying (no matter how small it seems) enables you to repay more on the debt with the next smallest APR?
Another part of me says that nearer to the end the term you are the less point in settling the debt because the damage has been done... Overpaying a debt is taking advantage of reverse compound interest, so the later you act the less you save in proportion to the debt.
If I overpay £1200 into my mortgage now it will reduce my term by 1 year, if I do that to my car loan it will nearly pay it off...... Once it is paid off that means I can overpay on my main mortgage even more per month which is a good thing right?
I'm too confused HELP!
0
Comments
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Have you read - http://www.moneysavingexpert.com/cards/pay-off-debts
Maybe worth while reading that first, as it might help you decide/understand. Then drop back here for further advice.Although no trees were harmed during the creation of this post, a large number of electrons were greatly inconvenienced.
There are two ways of constructing a software design: One way is to make it so simple that there are obviously no deficiencies, and the other way is to make it so complicated that there are no obvious deficiencies0
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