Sell It Or Keep It?

Who wins ... Diana (sell the car and get rid of the car payment) or her husband (keep it and pay the car loan off)?

QUESTION: Diana has a $450 car payment and 18 months left to pay on the car loan. Her husband thinks that since they have less than 2 years and have paid most of the interest on it, they shouldn’t sell it. Should they sell it or not, and to who should they sell if they do?

ANSWER: To start with, your husband is wrong. He believes a common myth that, on a house or car payment, that you are somehow prepaying interest because most of your payment goes toward interest in the early days of the car loan. That’s not true, though. Unless you got ripped off, when you get a traditional car loan it is calculated based on simple interest. That means interest is calculated based on the balance, and as the balance goes down, you are charged less interest. Selling the car is a different question. We recommend 2 things; that your total debt for all your motorized vehicles (cars, boats, Sea-Doos, etc.) does not exceed half your annual income, and you don’t have a car that you can’t pay off in 18 to 24 months. If you can pay it off in that time frame, then you can keep the car.

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