Author Topic: Question...car payment vs student loan payment  (Read 1158 times)

dividendsplease

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Question...car payment vs student loan payment
« on: February 05, 2017, 12:50:12 PM »
I am weighing my options and need some advice. Don't judge on the new vehicle purchase please:)

DW's 11 year old Honda Civic kicked the bucket last June which sucked cause I wanted to drive it another 5 years but was worth 1.5k based on mileage and repairs cost 3.5k. She's worked really hard and with a baby on the way at that point we got her a new Honda CRV that she wanted for safety reasons to be higher up and more storage for traveling with our now one week old daughter.

We owe roughly 19k @ 1.9% payment $387

I have grad loans that I have been chipping away at that I had the goal to pay off in 2017.

I owe 13.6k @ 6.2% payment $172.

I finished grad school last May and was lucky enough to cash flow most of school. I immediately started making weekly payments to chip away at the interest even though I had six month of deferment. Right now I'm just doing $60 a week so it more than covers my monthly payment and I'm technically "paid ahead" until August '17.

After the baby expenses shake out in the next few months I am going to take a chunk of savings and put it to something..probably around 7k to start...and then start hammering away at one of the loans each month. Should I choose the car or the school? Car has the high payment with low interest rate but the loans have the lower payment with high interest rate and interest is tax deductible. 2016 interest was $904.

Thanks!

Hargrove

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Re: Question...car payment vs student loan payment
« Reply #1 on: February 05, 2017, 01:50:05 PM »
The school loan will overwhelmingly be worth more to pay off than the car loan will be.

Also, holy hand grenades you bought a Honda CRV. That and the F150 are the stand-in "things not to buy."

Seriously though, 6.2% on those grad loans means you're only paying $100 in principal when you pay the minimum. That should alarm you about as much as buying the CRV. 1.9% on it is the "not the worst" version of a bad situation.

Tax deductible money from student loan interest just saves you (your tax bracket)*(the amount that you should be paying off ASAP if your interest is over 3 or 4%)*(your interest rate). It's not actually a massive discount or a reason to leave the loan there, any more than a $1.00 coupon is a reason to buy a $6.00 coffee.
« Last Edit: February 09, 2017, 12:04:43 PM by Hargrove »

Bimmy

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Re: Question...car payment vs student loan payment
« Reply #2 on: February 05, 2017, 05:26:32 PM »
Are you allowed to make principal payments on the student loan? That reads like you are making interest only payments on the student loan? Or did I misunderstand? I just didn't see how you paid ahead?

lilmisssunshine

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Re: Question...car payment vs student loan payment
« Reply #3 on: February 05, 2017, 08:19:04 PM »
I agree with Hargrove about paying the student loan before the car.

Another Reader

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Re: Question...car payment vs student loan payment
« Reply #4 on: February 05, 2017, 08:27:33 PM »
You should not be "paying ahead."  You should be paying down principal.  There is no benefit to paying ahead.  No interest savings, nothing.  If your lender/servicer does not let you make additional principal payments, start complaining very loudly.  I had a mortgage company try to pull that on me when I added a large amount to the payment.  They tried to credit future payments.  I raised hell with the CSR who had no clue what I was talking about.  I had to elevate the complaint to get someone that understood what I was saying and who grudgingly corrected their error.

If you contract does not allow you to prepay the principal, it's time to refinance with a lender that will.  If it does, insist that you be properly credited.

dividendsplease

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Re: Question...car payment vs student loan payment
« Reply #5 on: February 06, 2017, 06:06:01 AM »
Sorry, the loans are with Great Lakes (they suck) it says "paid ahead" but the payments Ive made are principal and interest. When I first started making my weekly $60 payments about $19 of that would go to interest. Currently it's in the low 16's a week. So there is progress being made to it at the weekly level...$3 a week isn't bad I don't think so far. I track daily, and interest is accruing at 2.32ish /day.

Great Lakes is just sneaky and shady...their "paid ahead" status is almost like a marketing tool. Pay more now, then you don't have to make any payments for a long time and let the interest accrue back up. I actually had a coworker who had loans with them and put a 5k bonus a few years before to her loans and said she didn't have a payment for 28 months. I said she should look at her balances cause she hadn't in two years and low and behold her account accrued 2,200 in interest while she thought she was taken care of for two years or principal and interest.

Another Reader

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Re: Question...car payment vs student loan payment
« Reply #6 on: February 06, 2017, 08:41:57 AM »
Send the servicer a certified letter instructing them to apply all previous extra payments as principal as of the date they were made.    If they refuse or don't respond. send a second certified letter with a copy to your congress person and senator, asking them to investigate and intervene on your behalf.  Be sure to note that you are doing so in your second letter to Great Lakes.  This is theft, pure and simple.