Car Loan or Home Loan: Which Would You Pay First?
Is it wiser to pay your car loan or your mortgage? It might seem like a silly question – after all, ideally you want to pay both. But if you had to choose, wouldn’t you pay your home loan first?
Apparently not, according to a recent report by Marketplace.
The report found that lenders are much more eager to give people car loans now than home loans, because Americans have shown more willingness to make car payments during hard times than mortgage payments.
I would have thought it might be the opposite. After all, many people consider homes a great investment and one that can even grow in value over time (despite the evidence of the last few years). Meanwhile cars tend to depreciate almost from the moment they are driven off the dealership parking lot. That would make me personally more likely to pay a mortgage than a car loan.
And if you are working toward getting out of debt, it might even make sense to ‘downsize’ your car and get out from under the car payment altogether. That’s what Jennifer, one of our users did, and it worked out really well for her. She used the extra money from not having car payments to start paying more toward her other debts, like credit cards.
Yet it seems on average Americans are more inclined to pay their car loan. And that has encouraged lenders to go in that direction. The report referenced above says that standards for making auto loans are not stringent at all in the current environment and that many of the loans being made are considered “sub-prime.” That sounds a bit ominous, given what we’ve recently lived through with the housing market.
2 Responses to “Car Loan or Home Loan: Which Would You Pay First?”
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It would be scary to have to make this choice. I think I’d explore other avenues before resolving to not pay one, like borrowing money from a family member. (Hey! I’m trustworthy.)
Great point! If you can find a way to get through that difficult point in time, you could potentially avoid all of the worst consequences of not paying one or the other. Always thinking about protecting that credit score!