Car loan vs Cash in bank.

G

Gav Mc

Guest
Last year when myself and my wife purchased our house we decided it was a good idea to pay off our remaining car loan of about €13,500 (fortunate to get some financial assistance) so as to not to have too much debt repayment per month (mortgage and car loan). Having being paying a mortgage for a year and half we now realise that we have that a little bit extra per month. We are currently both saving the max on the SSIA a/c's.
I am now wondering if it was such a good idea to pay off the car loan as I see the car depreciate in value each year. I know it would be good idea to pay the extra into the mortgage but we do not intend to stay in the house much longer.
Would appreciate some advice as to which would be the better option:
a) Sell current car for circa €10,000 and put money on deposit in the bank. Take out a new car loan to purchase a newer car and pay back about €300 per month over a few years.
b) Leave things the way they are.
 
Hi Gay - Forget depreciation, forget cars - just look at the money.

You pay interest on every penny you borrow. You pay higher interest on car loans than mortgages. From a financial point of you, you save money by paying off your loans, giving priority to the higher interest loans like credit cards or car loans first.
 
Hi,

It sounds like you borrowed 13500 over the full life of your mortgage.

Generally when you refinance a high interest rate loan into your mortgage, you should ask them to allow you to pay off that part of the mortgage over a shorter period. Otherwise you end up paying for your car 20 years after you bought it.

In your position I'd advise a few things.

1. If you have extra cash, and you have no other debts,
and your SSIA's are maxed out then putting it towards
your mortgage is a good idea. Either in lump sums or
ask to have your repayments increased.

2. If you are happy with your current car, do not buy a
new one. It never makes sense. Try to save up a bit
so you can buy your next car for cash.

The best way (i think) to handle cars is buy a 1 or 2 year old
car for cash and then drive it for as long as possible.

-Rd
 
RD and Rainyday,

Thank you both for the response and sound advice. (RD we paid the car loan off with cash, did not include it on the mortgage)

Enjoy the weekend.
 
>RD we paid the car loan off with cash, did not include it on the mortgage.


Ah, well then you're sorted. As long as you didn't bump up the amount of the mortgage to pay of the loan then you're fine.

And you were right to pay off the higer rate loan first.

You could if you have extra cash start saving for the next car.
Stick it in a Northern Rock or Anglo Irish account.

Also, it's a good idea to have ready access to a couple of months worth of income.

-Rd
 
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