Should You Pay Off Your Car Loan or Credit Card?
At a Glance
Debt never seems to be one-dimensional. What starts out as a first credit card account quickly turns into a mix of credit cards, mortgages, auto loans, and personal loans. As you grind through those monthly payments, perhaps a windfall comes your way. Do you pay off your car loan or zero the balance on your credit card? It’s not a simple decision.
Here’s your dilemma. An auto loan is a secured loan. Automobile ownership is the result of paying that off. Credit card debt is unsecured, but the interest rates are high. It’s comparing apples to oranges, yet both have a financial impact on your life. In this article, we’ll break down the best ways to pay off each of these, and whether that’s a good idea.
Paying off the car loan
Most consumers choose the car loan as the loan to pay off first because they want to own the vehicle outright, without fear of repossession due to default. This is a reasonable choice, but it may not be the correct one. There could be an early payoff penalty. The amount of that penalty could offset the amount you save in future interest payments.
If you don’t have a lump sum of money, you could look for a loan to pay off debt. This is basically trading a secured loan for an unsecured loan, so the interest rate might be higher. You can view that as a trade-off for owning the car outright. There will also be options to refinance the personal loan later, so don’t look at it as a permanent solution.
Paying off the credit card
Paying off credit card debt can also be done with a personal loan. In this case, you should be able to reduce your interest rate. The average interest rate on a credit card is almost 20%. The average interest rate on a personal loan is less than 10% and can go as low as 3% if you have an excellent credit score. Do your research. There are several options out there.
As a consumer with multiple debt accounts, you’ll receive frequent offers in the mail for pre-qualified personal loans and pre-qualified credit cards. Be careful with these. Pre-qualification does not mean final approval and applying for approval will negatively affect your credit score. You may be better off searching online for debt consolidation lenders.
Check out lenders and solutions that will get you what you need.
Use the filters below to refine your search
10 results that match your needs
6 min 
