Re-financing car question - to extend the loan or not?
I purchased my truck in 2010 and financed for 5.5% for 72 months. I have excellent credit, and at the time that was a good rate. I now have 36 months left on the loan, and as interest rates have significantly gone down, I'm looking for easy ways to cut some expenses. I was approved to refinance my truck for 2.79% for 36 months, or 48 months (same rate). Here is how the math breaks down:
Current: 35 months left at 5.5%, payment is $379, for a total of $13192 over the life. 36 month refi: 2.79%, payment would be $353, total of $12,708 over the life 48 month refi: 2.79%, payment would be $269, total of $12,912 over the life If I refi for 36, I save $26 a mo and $484 over the life of the loan. If I refi for 48, I save $110 a mo and $280 over the life of the loan. I wouldn't normally advocate extending the life of any loan, but in this case, am I better off making my $110 savings for the next 3 years (although a hit on the last year) work for me in other ways? Interest is so cheap! |
pay it off in three. own that beotch. There's no better feeling that not owing anybody anything.
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I agree, 110%! I considered paying it off right away (I have the money to pay it off in my account), but with interest so cheap, I'm making more money having the money invested in my portfolio than what I pay in interest. I'll probably refi for 36, although that $84 a mo difference is tempting.
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If you are that cash flush, a cheaper monthly payment shouldn't matter. 36M or sooner.
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These topics are always controversial because you hear two competing ideas. The first is "money is cheap, put that money to work for you." The other is "don't owe nobody nuthin." I'm firmly in the second camp because I'm a simpleton. If I were a super bawler who was managing cash flows and hedging my investments to squeak every last dime out of everyone to "make that money work for me" maybe the first option would make sense. But I'm not super-bawlin like that, and I don't think many people are. For every one of those super-bawlers I'm pretty sure there are 99 dudes in debt up to their eyeballs who will tell you how cheap the money is.
Fact is banks don't stay in business by not making money. |
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By paying off the loan early you have a guaranteed return of 2.79%. As to who pays off early, well, I've paid off every car loan I've ever had early. I just hate having a giant monthly nut. Now I make a car payment to myself every month and when there's enough cash in the cookie jar, I'll go buy a new car. (well probably a used car because if you haven't gathered, I'm a frugal mf'r). |
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I was quoted 1.8% for 48 today by another bank... I dont understand how they make money on such paltry rates.
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Pay it off in 3 years. 72 mos to pay off a car is ridiculous unless you're getting rates below 2% or something.
And then keep making those payments to a savings account of some sort and keep this car for 10 years or more so you can possibly pay cash for your next vehicle, taking advantage of some rebate at that time. Making payments on cars for you entire life is a waste of money in interest. |
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we need people like you ( good income, manage credit well, spend money) in our economy...i say go 48 months.
putting extra cash in your pocket every month....pay a little extra every quarter and you'll be in good shape still. |
seems like auto loans may be the next bubble...my bank didnt' bat an eye when i said can I get $100k+ loan for a car.....but asking for an additional $50k to buy a house need congressional approval.
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Refi and continue paying what you are paying now. You will pay it off faster with the lower interest, and you can keep the money in your portfolio working for you.
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[QUOTE=shawndoggy;1818697]Where is this guaranteed 3% return you speak of? The best 12 month CD rate I can find is 1% and it requires a $25k minimum deposit. What you are doing is borrowing at 2.79% with the hope that you can beat that return on that paltry $110 a month payment. so let's say you CAN get a guaranteed return of 3%. Assuming you had the full $1320 (12 months x $110 a month) invested on day one, playing the margin of 0.21% interest, you'd make two dollars and seventy seven cents over the course of that year ($2.77). Of course it would actually be less than that because you'd be making those payments $110 at a time, so the last payment would receive only 1/12 of the spread.
3% guaranteed is pretty easy to get, not all investments are CD's I can get 7.2% guaranteed no loss of principal EVER! |
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Guaranteed by whom? The government of Greece?
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