What's the best way to pay down a 24K loan? (rent, rate)

[sunbelt]

I am buying a piece of property for 24K. I can either pay over 10 years at 10% interest (I figured I can pay it off in 3-5 years) or borrow from my credit card (up to 20K at 4% until 3/13) to pay down up to 20K. But then, in addition to the payments on the loan, I have to pay back the CC. My disposable income after rent and utils etc is around 3K. If I plan on paying off the loan using all (if not most) of my disp. income, would it make any difference if I used the CC loan in addition? I guess its just a matter of running the numbers.

[sunbelt]

I used an online amort program to get the following:

loan only: 3 years @ 10% monthly payments: 774 total int paid: 3800
loan only: 1 years @ 10% monthly payments: 2100 total int paid: 1300
cc for 20K in 1.5 years @ 4%: monthly payments: 1100 total int paid: 639
cc for 15K in 1.5 years @ 4%: monthly payments: 850 total int paid: 480

[Lacerta]

What does the interest rate on the cc go to after 3/13? Are there penalties (like back interest) if you don't pay the balance off by that date? Those would both be important factors, since you don't think you can pay off the $20k by then.

Question, though. You said you have $3000 in disposable income a month? If I figure you only use $2500 a month of that, that is $30k in only 1 year. So why would it take you 3-5 years to pay off $24k? I know interest adds to that, but in 1 year, even on a front loaded mortgage, there isn't that much interest. I'm missing something there. If I figure on 3 years payoff, not counting interest, that would mean you are only paying off $666 dollars a month. Even at 10% interest, interest is only $200 a month at worst.

I ran an amortization on $24k for a 10 year loan at 10%, and the payment would be $317.16. Adding $2500 (so under $2850/month total) to that every month means it would be paid off in under 9 months. At 4% on the cc, it would be even faster.

That being the case, I'd probably max the card at 4%, and put as much as you can against it every month. If you really can swing $3k a month, you will have it paid off in well under year. The payments on the $4k loan at 10% won't be much. You could pay it off completely in the first 2 months and STILL finish paying off the CC in under a year.

Here is another question though. Will the bank (or whoever you were getting the $24k loan from at 10%) even let you get a tiny little $4k loan, or would you have to come up with that out of pocket? If you can't get that loan, do you have the money to pay out of pocket? That would be an important question too.

[sunbelt]

What does the interest rate on the cc go to after 3/13? Are there penalties (like back interest) if you don't pay the balance off by that date?

It goes up to something like 24%. I do have other CC that I can offset it to but I've played that game for too many years before I recently paid everything down. Don't think there's any back interest - better read the fine print.

So why would it take you 3-5 years to pay off $24k?

I was just using the 3-5 years in the amort program. I could get the loan for 10 years and pay it off whenever as long as there's no pre-payment penalties.

I'm going to ask the seller (owner financed) if he would take a big chunk as a down payment. If not, then as long as there's no pre-pay penalties then I could just get the loan from the CC and deposit in my acct. and pay off the loan whenever. I think there's a 4% fee on the CC loan too. I have my CC acct. set up to pay the min every time its due if I forget. I did some more figuring and you're right - I should just about max out the card and pray that I don't do something stupid with the extra money in the acct. I was actually thinking about seeing if I could transfer most of it directly from the CC co. to the seller's acct. just so I don't raise any red flags with DHS ($2500 ?).

[debtmonger]

I would pass on both of these options. If I didn't have 24K, I wouldn't be buying the property and I wouldn't be buying the property anyway, if i wasn't getting a steal of a deal.

[sunbelt]

Originally Posted by debtmonger

I would pass on both of these options. If I didn't have 24K, I wouldn't be buying the property and I wouldn't be buying the property anyway, if i wasn't getting a steal of a deal.

Its for 35 acres - remote prairie - very few trees - no utils at all. But its close and cheaper than some other places and the remote thing is a plus for me. I'm thinking the price of land could go down some more but I don't want to wait any longer.

[duster1979]

Originally Posted by sunbelt

My disposable income after rent and utils etc is around 3K. If I plan on paying off the loan using all (if not most) of my disp. income, would it make any difference if I used the CC loan in addition? I guess its just a matter of running the numbers.

You're talking about discretionary income here. Disposable income is the money you have "at your disposal" on payday, in other words your gross income minus whatever you have held out of your paycheck. Discretionary income is what you have to use "at your discretion" after paying all the bills you have previously committed to such as rent, utilities, car insurance, etc.

Originally Posted by sunbelt

Don't think there's any back interest - better read the fine print.

I will absolutely guarantee that there is back interest.

You're not going to beat 4% at the bank on an unimproved property, but if you go the CC route make absolutely sure that you have a contingency plan in place in case you are unable to pay it off by the time the promo period ends.