Pay off Car or Pay into Homeloan !! - Page 3




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  1. #41
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by FreeLander2 View Post
    be careful, if you have been paying your car off for a few years, you would have paid most of the interest off already, and thus you will be paying off the cash portion of the loan, but all the damage was already done in the beginning of the loan.

    these banks are clever buggers, they know that most loans are for 3-4 years, so they load all the interest payments up front, only after you have paid the bulk of their finance charges do you start to pay off a significant part of the debt capital.

    same goes for the home loan, except its over a longer period.

    My theory is if you pay off the car, you will get the itch in a few months to then buy another car, so you would have wasted that capital. rather just pay into the bond.
    Completely incorrect.

    You pay interest every month that was charged that month, and a portion of capital.
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  2. #42
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by PieterPan View Post
    Don't ignore the a very important statement that one poster made: if your car loan is one of those where the interest is predetermined, even when you pay the full loan early, then there really isn't much benefit in paying off the car first
    Incorrect.

    Only a 3 month "interest" penalty might apply to certain loans.

    Interest is charged monthly on the outstanding amount, that is settled with a portion of the capital.

    Capital reduces monthly and so does interest charge until it reaches 0 after the period of the loan.
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  3. #43
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    Default Re: Pay off Car or Pay into Homeloan !!

    Blind, the idea that Freelander2 is trying to put forth, although not in the best choice of words, is that there is little benefits left to settling any debt with only a short repayment term remaining.

    You reap the greatest benefits to start reducing capital immediately.

    Don't be so pedantic man, you get what we're all trying to convey.
    Last edited by Die SwartKat; 2017/01/11 at 06:11 PM.
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  4. #44
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by PieterPan View Post
    Don't ignore the a very important statement that one poster made: if your car loan is one of those where the interest is predetermined, even when you pay the full loan early, then there really isn't much benefit in paying off the car first
    This makes no sense to me.

    You cannot charge interest on what is not due at a specific point in time.
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  5. #45
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    Default Re: Pay off Car or Pay into Homeloan !!

    I agree that penalties and funny clauses on car deals have to be taken into account.

    I can draw proof of one of my own deals that was in a business name and I got the statement every month with the stated capital balance and the interest portion and I understood exactly. I thought settlement and capital balance was the same thing but no there was many T&Cs that applied.

    So I agree it does not make sense but none of us know the fine print until we try and pay it off early.

    So get a settlement amount from the bank before you make any decision.

  6. #46
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by Die SwartKat View Post
    Blind, the idea that Freelander2 is trying to put forth, although not in the best choice of words, is that there is little benefits left to settling any debt with only a short repayment term remaining.

    You reap the greatest benefits to start reducing capital immediately.

    Don't be so pedantic man, you get what we're all trying to convey.
    Lol, im pedantic when I see I can help someone out with the correct advice. Someone else might be reading that and make an incorrect decision based on it. :-)
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  7. #47
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    Default Re: Pay off Car or Pay into Homeloan !!

    If your car is on a fixed interest rate over x months.then pay off your house. A vehicle devalues so you are paying of a loosing But a house increases in value. Which is better to live in a car or home.
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  8. #48
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by Mal Hannes View Post
    I agree that penalties and funny clauses on car deals have to be taken into account.

    I can draw proof of one of my own deals that was in a business name and I got the statement every month with the stated capital balance and the interest portion and I understood exactly. I thought settlement and capital balance was the same thing but no there was many T&Cs that applied.

    So I agree it does not make sense but none of us know the fine print until we try and pay it off early.

    So get a settlement amount from the bank before you make any decision.
    Then also ask about the penalties for early settlement - AND ask about notice periods, or minimum balances to avoid such early settlement penalties .....

    often a notice period voids the penalty ...

    OR, reduce the capital value to R1k but keep the account "open" .. minimal interest, but no early settlement penalties .....

  9. #49
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    Default Re: Pay off Car or Pay into Homeloan !!

    There is a thinking error here. When you pay off early the terms of the loan change and therefore the complete loan has to be recalculated. Bank cannot charge interest on money they do not borrow out. By paying early some of the money paid that were towards the interest "change" to capital payments. Excel has the required formula to do the full calculation but to get it right might not be that easy as the person who has the loan has "over" paid every month.

    With the bonds banks have been calculating the payments wrong in the past. I would not be surprised at all if they have/are doing the same with car loans. At one time there were companies that recalculated the bods and people got substantial moneys back.

    Quote Originally Posted by FreeLander2 View Post
    be careful, if you have been paying your car off for a few years, you would have paid most of the interest off already, and thus you will be paying off the cash portion of the loan, but all the damage was already done in the beginning of the loan.

    these banks are clever buggers, they know that most loans are for 3-4 years, so they load all the interest payments up front, only after you have paid the bulk of their finance charges do you start to pay off a significant part of the debt capital.

    same goes for the home loan, except its over a longer period.

    My theory is if you pay off the car, you will get the itch in a few months to then buy another car, so you would have wasted that capital. rather just pay into the bond.
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  10. #50
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    Default Re: Pay off Car or Pay into Homeloan !!

    IMHO, There is a HUGE difference between a LUMP SUM SETTLEMENT and EARLY SETTLEMENT DUE TO LARGER MONTHLY PAYMENTS.

    The bank has the right to incur a penalty on early settlement as a lump sum as the contract with you the lender is for a fixed period.

    The bank takes the risk and in return gets a) interest payments b) a service fee.

    If you settle, they might get their money back early, but they lose out on a) the compounded interest and b) the service fees for the balance of the loan period.

    However, all things being equal, I suppose they'd also prefer their money back early so that they can move the funds to a new sucker........errrr customer.
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  11. #51
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by FreeLander2 View Post
    be careful, if you have been paying your car off for a few years, you would have paid most of the interest off already, and thus you will be paying off the cash portion of the loan, but all the damage was already done in the beginning of the loan.

    these banks are clever buggers, they know that most loans are for 3-4 years, so they load all the interest payments up front, only after you have paid the bulk of their finance charges do you start to pay off a significant part of the debt capital.

    same goes for the home loan, except its over a longer period.


    My theory is if you pay off the car, you will get the itch in a few months to then buy another car, so you would have wasted that capital. rather just pay into the bond.
    I am sorry to say that this is absolute rubbish( disclaimer; I am an ex bank manager )

  12. #52
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by jelo View Post
    IMHO, There is a HUGE difference between a LUMP SUM SETTLEMENT and EARLY SETTLEMENT DUE TO LARGER MONTHLY PAYMENTS.

    The bank has the right to incur a penalty on early settlement as a lump sum as the contract with you the lender is for a fixed period.

    The bank takes the risk and in return gets a) interest payments b) a service fee.

    If you settle, they might get their money back early, but they lose out on a) the compounded interest and b) the service fees for the balance of the loan period.

    However, all things being equal, I suppose they'd also prefer their money back early so that they can move the funds to a new sucker........errrr customer.
    With early settlement you have to give 90 days written notice, if not the bank is permitted by law to charge and recoup interest on the then outstanding capital up to a maximum of 90 days. The balance of interest is your rebate. They do not have to charge that but are allowed to. That short notice penalty of 90 days is negotiable. If you do a lump sum on your bond, no problem you pay less interest as interest is calculated on a daily basis. If you do a lump sum payment on an ISA (instalment sale agreement ) you have to notify the bank and ask for a recalculation of the instalment otherwise you get no benefit.

    I left the bank in 1998 and things might have changed but this is how we used to do things.
    Last edited by KoosDup; 2017/01/13 at 07:28 AM.

  13. #53
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    Default Re: Pay off Car or Pay into Homeloan !!

    Vat daai 200k en sit neer as deposito op nog 'n eiendom, en laat die Huurder jou verband afbetaal.

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  14. #54
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    Default Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by jelo View Post
    IMHO, There is a HUGE difference between a LUMP SUM SETTLEMENT and EARLY SETTLEMENT DUE TO LARGER MONTHLY PAYMENTS.

    The bank has the right to incur a penalty on early settlement as a lump sum as the contract with you the lender is for a fixed period.

    The bank takes the risk and in return gets a) interest payments b) a service fee.

    If you settle, they might get their money back early, but they lose out on a) the compounded interest and b) the service fees for the balance of the loan period.

    However, all things being equal, I suppose they'd also prefer their money back early so that they can move the funds to a new sucker........errrr customer.
    Have to agree with Jello. If you pay more than your monthly instalment on an ISA or lease account you will obviously pay it off quicker but it makes more sense to rather pay extra on your bond and once you have sufficient surplus withdraw that and settle your car account. Just do not forget the 90 days notice.

  15. #55
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    Question Re: Pay off Car or Pay into Homeloan !!

    Quote Originally Posted by Williepiet View Post
    Vertical creative thinking above out of the box thanks!
    Also according to my practices over the years.
    With any debt you have inflation on your side. The real value of your debt decrease over years.
    Agreed
    However
    An example of inflation
    When the big mall here opened a good cappuccino cost R6.00 -- it now costs R21.00 ( and always increasing and the quality decreasing )
    WHO has stolen -- R15.00 ?

    Please could you expand on this -- "using debt" a bit more
    Obviously it is a fine line
    and
    Banks / Financial houses are NOT stupid and they obviously take this into account
    Bank are like Casinos -- the "house" ALWAYS wins

    Still it MIGHT be possible with a lot of homework to even the odds ?

  16. #56
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    Default Re: Pay off Car or Pay into Homeloan !!

    If there are penalties or other issues they have to be stated in the loan agreement. However I cannot see that any bank can charge interest on monies that customer has paid back. If you follow the cancellation clauses and do not become liable to some penalties it is always best to pay back the highest interest loan.

    My advise to my kids was when they were negotiating bonds was to make sure that there are no penalties for early payments. They did follow up on this. Please make sure in the future the same.

    It is important to read and understand the conditions of a loan or any agreement for that matter. Who has read and understands the loan agreement on their car? If you talk to the car sales people they will tell you that only issue is how much the sucker can afford per month. Interest, penalties, loan period... are all irrelevant.

    Interest is % calculation and I don't find too many people who actually can calculate % calculations correctly - even those very simple cases.

    Quote Originally Posted by jelo View Post
    IMHO, There is a HUGE difference between a LUMP SUM SETTLEMENT and EARLY SETTLEMENT DUE TO LARGER MONTHLY PAYMENTS.

    The bank has the right to incur a penalty on early settlement as a lump sum as the contract with you the lender is for a fixed period.

    The bank takes the risk and in return gets a) interest payments b) a service fee.

    If you settle, they might get their money back early, but they lose out on a) the compounded interest and b) the service fees for the balance of the loan period.

    However, all things being equal, I suppose they'd also prefer their money back early so that they can move the funds to a new sucker........errrr customer.
    Jouko
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