I am about to buy a new car. Should I pay off our credit cards or use the money for a larger down payment?

Question

I am wondering if paying off my credit cards will help lower the interest rate that will be offered to me or will a larger downpayment be more beneficial. **Please NO solicitations**

Thanks for the answers! For those of you who are wondering, I MUST purchase a new car, obviously I know cash would be the no-brainer but NOT an option ( which is the case of most people).

Answer 1

I would use the money to pay off the credit cards as their interest rates are higher so you will pay more in the long run

Answer 2

If it's either:
A) Buy a new car with a bigger down payment and more CC debt
or
B) Buy a new car with a smaller down payment and less CC debt

the decision is DEFINITELY to choose (B) and pay off the credit card debt. It's compounding interest probably at a rate of like 25% or higher. Even with bad credit, a new car will probably be financed at an interest rate of lower than 10%. Mathematically, it's a no-brainer.

HOWEVER, the smartest move would be to:
C) Pay off the credit cards and deal with your old car for a little while longer.
Give yourself a little time for your credit rating to improve and everything gets a lot cheaper.

Answer 3

I would look at what the interest rates on the credit cards are as opposed to that of the car payments. With credit cards, they like you to pay as much interest as possible and have no defined payoff time, whereas cars have a defined time to start your payments and when your car will be paid off. Most credit cards have relatively high interest rates and the principal amount paid each month is considerably lower. You are throwing quite a lot of money away each month with credit cards. Personally I hate credit cards! In my opinion, credit cards are legalized loan sharking.
My personal recommendation would be pay off those credit cards and then buy your car even if the down payment is less. Also with the car, if your payment is $250 and your principal part of that payment is $25.00 then I would encourage you to make an additional principal payment each month which helps reduce the amount of interest overall that you pay and will increase your monthly principal amount and reduce your interest amount yet your payment will remain the same. This is also true with house payments. It is said that if you pay your first house payment on the day you purchase your house that you will reduce your payments by several years as the interest is charged on the unpaid balance. I hope this makes sense to you. I am a realtor and no I am not going to solicit your business but I will tell you that there are amortization charts that you can find either online or thru a mortgage person at a bank. Using this chart you can play with the numbers and determine how much you are going to pay monthly and at what rates with certain down payment amounts.
To answer your question concerning lowering interest rates, that is determined by your credit score and your debt to loan figures.
A word of caution, don't go to car dealer x,y & z and let them all pull your credit, that in and of itself can reduce your credit score and increase your interest rate. Ask them to give you a scenario of credit scores with various down payments. If they won't cooperate with you then the dealer next door just might when they hear how you were treated by another dealer. This my friend, is part of the art of negotiations!
Hey, are you sure you don't want to buy a house in Florida... Only kidding!

Sara

Answer 4

Paying off credit cards might raise your credit score and thus make you eligible for a lower rate on a car loan.

You'd need 30 to 60 days for this to be reflected in your credit score, so if you are planning on buying a car in the next two weeks it would have no impact.

Answer 5

Only purchase as much car as you can afford to completely pay for with cash.

Pay off your credit cards and get rid of them. Debt is not your friend. Cash saved is your friend.

Never purchase a new car unless you are intentionally trying to throw away your money. During the first two years, the depreciation is the worst. Let someone else take that financial hit.

If you improve your net worth now, you will be able to pay for a much better car later.

Answer 6

Yes, paying off other debt will definitely help your interest rate on the car. However, since credit card companies report to the credit bureaus only once a month, you do need to wait at least a month or two prior to getting the car loan.

Answer 7

Do you let your balance roll to the next month like most Americans? If so, that's not smart. They only jack up the interest on you b/c they know you won't pay the balance in full anyway. And The maintaince fee sounds like something they added to deal with manageing your account. I've yet to have these issues. Maybe it's b/c 85% of the time I pay the full balance. I suggest you do your homework, apply for another card, once approved, call up your current credit card company and threaten to cancel the card if they don't remove the fees. Let them know you've found another card who is offering you better benefits. If they don't budge, cancel it. Last thing you want to do is close the card and not have a better one b/c it will hurt your credit.

Answer 8

Some car company offers low interest if you finance with them. If you put down too much payment, you may not get the rate that you want. If they give you a 1.99%, they want you to finance at least 5000 or more.

Pay off your credit cards because it's definitely higher than some car loan.

Answer 9

The credit cards probably have higher interest rates, so pay them off, and it may get you a better car loan rate because of low or no balances.

Answer 10

If your credit score is above 720 right now, then don't worry about it.

Also, even if you have a lower credit score and you payoff your credit cards, it may not matter.

Finally, payoff your credit cards anyway and finance more in a car payment. chances are the interest rate on the car is much cheaper than what you are paying on your credit cards.