Car paid off or sink more into mortgage?

C8LNJ

The family car has come to the end of its finance term and it's still tickin all the boxes so I plan to keep it, probably for another 3yrs.

I have the gfv amount 10k set aside to buy it, however would I be better off financially putting this into my mortgage and getting another loan for the car?

My mortgage is 1.99% 14yr term.

Personal loan would cost £478 over 3yrs at 3.1% payments work out similar to now.

Where is the smart money? No car payment or make a dent on the mortgage? With no car payment I'm around 300 a month better off which I could repay I monthly instead of all up front I guess? Is anyone clued up?

wishingthemortgaheaway

I'm sure many many people round here are more knowledgeable than I. But I would say.
1) pay off the car with cash. A loan with a higher interest rate than your mortgage seems not so sensible to me.
2) think about how you are going to pay for your next car in 3 years time.

If it was me, I'd pay the car off in cash then continue to put aside the monthly payments in a high interest or fixed term account so that, when I come to replace the car, I would have the cash to pay for it outright rather than taking on more debt.
If you've been paying the car loan & saving for the final payment then you may be able to save some money and over pay the mortgage by some too.
I guess it depends on the figures.

System

Whatever has the higher interest rate gets your money so if a loan is more than the mortgage then you pay off the loan/don't get it. If your savings interest is higher than the mortgage you put the money in the savings instead of paying off a lump of the mortgage.

C8LNJ

Thanks for the replies.

I am very motivated towards getting rid of the mortgage as quickly as possible.

I see it as the personal loan will cost me 480 for the term. But overpaying will save thousands over the remaining term!?

Show me how I'm wrong and not looking at this correctly?

Old_Git

I had a similar dilemma recently .Do I clear a loan or overpay the mortgage. The mortgage is a secured loan the other loan wasn't.

Loan=3% would be clear in 18 months .
Mortgage =1.97% until July but another 10 years to run.

I cleared the loan at 3%
I paid £5000 of the mortgage I kept the term at 10 years.The mortgage payment went down £44.
I then increased the mortgage payments to £40 more than I had been paying for the mortgage and the loan.

wishingthemortgaheaway

A £10k loan at 3% over 3 years would cost £290 a month, repaying about £10.5k

On a £100k mortgage balance with 14 years left, at 1.99% a £10k overpayment now would reduce the term by 1 year 7 months and save approx £3k in interest (although the 'benefit' would be reduced to £2.5k as you'll be paying £500 interest on the loan.)

Paying the £10k to the car cash and putting the £290 a month 'would have been a car payment' as a monthly overpayment for the remaining life of your mortgage would reduce the term by 4 years 7 months and save £4.9k in interest.

Final scenario:
Pay off the car, put the £290 a month in a 5% account for 3 years earn £825 in interest.