Paying off a loan - what would you do?

[gecko]

Here's the situation.....

Loan #1: 8.5% interest, interest is deductible

Loan #2: 5.4% interest, interest IS NOT deductible

Both loans are for the same amount (roughly). If you could pay off one, which would you pay off...?

 

[homer]

the higher interest loan is also deductible. doesn't it win out in both cases?

 

[EuroHorn]

Normalize the tax-deductable one by multiplying by (1- your tax rate). Then compare So if your tax rate is 28% then the after tax rate would be about 6.1%. So pay off this one first, in this example