Real Estate Investor Debt Income Ratio
I have been trying to get myself into a better Debt/Income Ratio for a long time. I have been looking into paying off some of my loans and those off my wife's. Since I started investing into real estate, my debt/income Ratio has been getting higher and higher. Of course once it is over 40%, lenders have nothing to do with me. So, as a personal goal, I have been trying to figure out the best possible way of becoming debt free. After all, that is how we all want to be. Right??
How should this investor pay off his car?
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Greetings..
I am new to this website, but maybe I can offer a little help here. I couldn't say for sure what would be best for you (paying it off, or not), because it depends on your situation a great deal.
With a rate of 5% on the loan, that will be hard to beat. Financing it with something else, with a higher interest rate doesn't sound like a good idea.
Paying it off with cash would be your best bet. However, you need to figure out if the $4,000 can be used in some other way than paying off your car. Can you use the $4,000 to invest in something that will bring in more money? If you are at the point where the $4,000 is just going to sit in savings, then by all means, pay it off. Savings interest rates are ~2% if you are lucky. You will save money by paying off the car. BUT that is only if you can't use the $4,000 to make more than you would save. Crunch the numbers.
Good Luck.
Anonymous, why are you jumping throught hoops going for new financing?
There are millions of perfectly good loans out there already in place on nice houses.
There are also hundreds of thousands of nice people who would gladly let you take over those mortgages to get rid of their properties!
Look for people who are in distress, they are your key to bank-less financing.
Bill
If you really want to help out your credit situation pay the car off like this:
Make each payment eccessively EARLY and always pay at least 10 percent MORE than the required payment. Make sure that you include a note (copied for your own good) stating that you want the overpayment to go to the PRINCPLE ONLY (you may need to send a separate check to do this. ask your loan company what their preference is). This gets the payment time down considerably. It should also get a report from the loan company that you pay early and more than required. These are point getters!
Using a second mortgage or an equity line to pay off your car loan will not improve your credit ratios very much since you will still have the debt.
However, don't overlook the tax advantage of using a home equity loan to pay off some or all of your consumer debt. Under the current tax law, the interest on your car loan (and any other consumer debt such as credit cards) is not tax deductible. But, if you take out a home equity loan, the interest on that loan is a mortgage interest deduction if you itemize. If you are in the 27.5% tax bracket, that 8% equity loan is really costing you 5.8% after taxes. Now that equity lines are at prime rate (around 5%), you will do better to use a home equity loan to pay off the balance on your car loan.