I have a home loan of 1 crore at 8.75% for 30 years and a car loan of 13 lakhs at 8.75% for 7 years. I recently got some extra cash from an old LIC policy and some savings. I have about 4 lakhs to use. Should I put it towards paying off the car loan or reduce some of the home loan? Not looking to invest in stocks or mutual funds.
I am from India.
A seven-year car loan? That’s a long time for a car loan! I’d focus on paying down the home loan because of how much interest will build up over 30 years, but wow, that car loan term is rough.
Rex said:
A seven-year car loan? That’s a long time for a car loan! I’d focus on paying down the home loan because of how much interest will build up over 30 years, but wow, that car loan term is rough.
Yeah, made some poor decisions back then 
@Shannon
If you can get rid of that car loan, do it. Also, consider refinancing your home loan. And rethink not investing—you’re missing out on potential growth!
Rex said:
@Shannon
If you can get rid of that car loan, do it. Also, consider refinancing your home loan. And rethink not investing—you’re missing out on potential growth!
Investing a lump sum right now seems risky to me, especially with these loans. Also, my home loan is already at a competitive rate for the Indian market.
@Shannon
I understand, but those are the steps I’d follow in order: car loan, home loan, and finally investing.
Rex said:
@Shannon
I understand, but those are the steps I’d follow in order: car loan, home loan, and finally investing.
Got it, thanks!
@Shannon
The way you mention Lakhs makes it clear you’re not in the US or Europe. Advice here might be a bit different from what works in your country.
Devon said:
@Shannon
The way you mention Lakhs makes it clear you’re not in the US or Europe. Advice here might be a bit different from what works in your country.
True, I should have mentioned I’m from India. Our loan interest rates here are between 8.35% and 9.5%. My rates are on the lower side, but since I got some extra cash, I thought I’d ask for advice.
@Shannon
Good to know! It helps everyone give better advice.
Devon said:
@Shannon
Good to know! It helps everyone give better advice.
I appreciate that!
Rex said:
A seven-year car loan? That’s a long time for a car loan! I’d focus on paying down the home loan because of how much interest will build up over 30 years, but wow, that car loan term is rough.
The interest rates are the same on both loans, so it wouldn’t make a big difference mathematically. But paying off the car loan could give you some breathing room sooner.
@Hadi
It would actually make a difference because of the size of the loans. Reducing the home loan saves more over time since it’s much larger and over a longer period.
Mathematically, it doesn’t really matter. But paying off the car loan could free up some cash flow faster. Plus, you might be able to deduct home loan interest on taxes, depending on where you are.
Hadi said:
Mathematically, it doesn’t really matter. But paying off the car loan could free up some cash flow faster. Plus, you might be able to deduct home loan interest on taxes, depending on where you are.
Thanks for the input!
I’d clear the car loan first. It’s smaller, so you’ll get it done faster, and that frees up money for other things. Also, consider refinancing your home loan if possible to get a better deal.
Payne said:
I’d clear the car loan first. It’s smaller, so you’ll get it done faster, and that frees up money for other things. Also, consider refinancing your home loan if possible to get a better deal.
Thanks for the advice!
If you’re in the US, pay off the car loan and refinance the mortgage since mortgage interest is tax-deductible.
Oli said:
If you’re in the US, pay off the car loan and refinance the mortgage since mortgage interest is tax-deductible.
I doubt they’re in the US—most Americans don’t use ‘Lakhs’ to talk about money.
Pay off the car loan first.