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Pay off car loan or mortgage?
kevin1971
Posts: 5 Forumite
I have recently divorce and have settled with a large lump sum.
I have 2 mortgages of appx £25k each with monthly payments of £300 each and a car loan of £8000 again with a monthly repayment of £300 so altogether i'm paying out £900 a month which is a bit of a struggle as a now single parent on one salary.
I intend to purchase an investment property with half of the settlement money but I want to reduce my monthly outgoings by paying off either one of the mortgages or the car loan. The mortgages have around 8 years left on them and the car loan just 2 years. To my way of thinking if I repay the mortgage and free up the £300, in just 2 years i would have paid up the loan too and will then have £600 p/m at my disposal.
interest rates on the mortgages are about 3.5% and the loan is costing about £40 a month in interest...
Does this sound like a logical decision?
Thank you, Kevin
I have 2 mortgages of appx £25k each with monthly payments of £300 each and a car loan of £8000 again with a monthly repayment of £300 so altogether i'm paying out £900 a month which is a bit of a struggle as a now single parent on one salary.
I intend to purchase an investment property with half of the settlement money but I want to reduce my monthly outgoings by paying off either one of the mortgages or the car loan. The mortgages have around 8 years left on them and the car loan just 2 years. To my way of thinking if I repay the mortgage and free up the £300, in just 2 years i would have paid up the loan too and will then have £600 p/m at my disposal.
interest rates on the mortgages are about 3.5% and the loan is costing about £40 a month in interest...
Does this sound like a logical decision?
Thank you, Kevin
0
Comments
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Hi Kevin
To make the best decision you really need to compare like for like. What is the actual interest rate for the loan? Are there any penalties for early repayment for the mortgage or loan? Are there penalties for overpaying either?weaving through the chaos...0 -
It looks like your car loan is charging you around 6% interest if you are paying £40 per month interest so the best use of your funds is to repay this providing there are no early settlement penalties. This then leaves you a larger lump sum to either repay a proportion of one of the mortgages or help towards the investment property.
The golden rule when using savings to reduce debt is to reduce the highest charging debt as the term can always be adjusted. So you can repay the £8000 loan (get a settlement figure first) and use the remainder of the proceeds to pay off part of one of the mortgages and you can reduce the monthly payment then or the term.I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.
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You don't say how much the settlement is, but if you didn't buy the investment property would you have enough to pay off both mortgages and the car loan? That would leave you totally debt free and with an extra £900 per month towards buying the investment property in the future.0
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