I’ve got a few loans I need to pay off, and I was wondering which of these loans I should try to pay off in full first.
Auto loans generally have a high-interest rate compared to mortgage loans. The balance on an auto loan is very small when compared to that of a mortgage payment. The average interest rate for auto loans is around 4.28%. The length to pay auto loans is very small, around 6 years, which is well beyond the basic warranty period for most manufacturers. If anything happens to your vehicle while you still have a loan balance, then it puts you in deep trouble. Therefore, it is generally a good idea to pay off your auto loan while you’re still under warranty period.
Whereas, Mortgage loans can be paid later when deciding to pay auto loan or mortgage loan first. The reason behind this is that mortgages generally have a low-interest rate which averages around 4%. Also, the balance to pay a mortgage payment is very large compared to an auto loan. Additionally, some mortgages carry a prepayment penalty if you pay the loan amount early. Hence, it is better to pay a mortgage loan later when compared to an auto loan. Make sure that you make the minimum payment for all of your loans every month though to avoid penalties.