Out of the the 3 loans below, which would make the most financial sense to pay more towards principal? I am looking to put $10k towards principal payoff. Please advise. Thanks!
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
8y
It would help to know the balance and term remaining that you owe on each. Would the 10K get you close to pay off of any of the balances?
My first thought would be to try to pay off the car payment first. The solar has the highest interest rate, but at such a low payment it would be much more beneficial to your financial position to knock out the car payment early if you can because the value of the car is depreciating.
Real Estate Agent · Santa Rosa, CA · Member since 2018 · 84 posts · 105 votes
8y
Hi Joshua,
I'm in the solar industry and I think it would make a difference whether the loan is help privately or part of a public program such as PACE. Sometimes a loan can be held as part of a local program and is tied in with your house tax payments.
Without this info, I think paying down the solar, which is the highest interest rate. Definitely do not pay down the house unless these other loans are paid down. You get so many benefits from the home loan, so touch that last.
If the car you own is not necessary, you could save even more to sell your vehicle and move to a more economical car as this is a depreciating asset.
STAFFORD, VA · Member since 2018 · 78 posts · 39 votes
8y
I'm with everyone else, Solar then Car, and here's the logic.
Mathematically, paying down the highest interest rate (solar) is the most cost effective. Psychologically, studies show, paying down the balances that you can pay off more quickly in most people's cases actually lead to quicker debt elimination. The solar in this case fits both, highest interest rate and should be quickest to pay off.
As far as the Car vs the Home, even though the interest rate is higher on the car, the amount is likely actually less due to the tax advantages of deducting the Mortgage Interest. That, in conjunction with paying off 50k can be done significantly quicker than 600k, which is the better in terms of the psychological effect.
My final thought is, since you're on bigger pockets, I'm assuming you're interested in real estate investing. With that said, with the exception of high interest debt, it's typically better in the long wrong to use available cash to invest. I've done about a gagillion spreadsheets calculating debt paydown vs putting it toward my real estate investments and in all cases of mine, using the cash towards real estate was always better in the long run. David Ramsey may not like that statement, and of course any investment has risk. However, as long as they're calculated risks, I'd consider that option as well.
Lender · Powell, OH · Member since 2016 · 97 posts · 64 votes
8y
I wouldn't pay off any of them. Those are all good rates and terms. If you are ever going to borrow money later it will likely be at worse terms than the three loans you outlined above.I would invest any money you were planning on using to pay these debts downs on opportunities that pay greater than 5.49% returns. The higher the better.
If you you are just going to accumulate it in a low interest bearing account I would go solar, car, house.
Sacramento, CA · Member since 2017 · 22 posts · 6 votes
8y
Hmm please help me understand. If the 10k doesn't pay off the loan then why would you want to apply 10k at those rates and also when they're fixed payments? Wouldn't it be better to apply that money to an investment?
And damn you bought an expensive car. If you're looking to invest that's a lot of money you're spending on a depreciating asset and one that you can easily replace at for way cheaper??
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y
There’s not enough enough info to answer the question. Why do you want to pay just one loan down? What is your goal? Is 10k all of your savings or so you have substantially more?
It doesn't make a lot of sense to me to just randomly throw 10k at one of these loans. It won't pay any of them off. It won't lower any of your monthly payments. It won't reduce your monthly DTI ratio if you try to get another loan for real estate investing.
We need to know what your goal is. Hence the reason I said there’s not enough info to answer the question.
You have pretty low interest rates on all three loans. If the 10K is all you have in your savings, I would keep that money safe
With the information you provided I would pay down your solar loan just factoring that it has the highest interest rate. That is usually the rule of thumb. Pay off all debt with the highest interest rates first.
Rental Property Investor · Albany, OR · Member since 2015 · 312 posts · 136 votes
8y
I've got a similar dilemma except to pay off low interest debt vs invest. For you I'd recommend paying off the solar loan first then the car as most are recommending.