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-   -   Re-financing car question - to extend the loan or not? (http://www.wakeworld.com/forum/showthread.php?t=797808)

fouroheight68 04-25-2013 8:43 AM

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!

shawndoggy 04-25-2013 8:56 AM

pay it off in three. own that beotch. There's no better feeling that not owing anybody anything.

fouroheight68 04-25-2013 9:01 AM

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.

psudy 04-25-2013 9:05 AM

If you are that cash flush, a cheaper monthly payment shouldn't matter. 36M or sooner.

shawndoggy 04-25-2013 9:11 AM

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.

fouroheight68 04-25-2013 9:28 AM

Quote:

Originally Posted by shawndoggy (Post 1818688)
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.

I totally agree. Although, I really "walk the walk" so to speak - If I'm saving $110/mo on my payment, I'll put a good majority of that in an account or investment that earns 3%+. If I do refi for 48, I always have the option of adding payments, or paying off sooner, it just means less I HAVE to pay each month. But, lets be honest, who really adds to their minimum payment?

shawndoggy 04-25-2013 10:08 AM

Quote:

Originally Posted by fouroheight68 (Post 1818693)
I totally agree. Although, I really "walk the walk" so to speak - If I'm saving $110/mo on my payment, I'll put a good majority of that in an account or investment that earns 3%+. If I do refi for 48, I always have the option of adding payments, or paying off sooner, it just means less I HAVE to pay each month. But, lets be honest, who really adds to their minimum payment?

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.

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).

fouroheight68 04-25-2013 11:37 AM

Quote:

Originally Posted by shawndoggy (Post 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.

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).

That's a good point. I've always been against buying new, but I picked up this Ram (fully loaded 4x4 quad cab) for 24k brand new with a sticker of 37k. I'm pretty frugal myself! Funny, I've had this truck for 3 years and the low book in still equal to what I paid new 3 years ago!

fouroheight68 04-25-2013 11:40 AM

I was quoted 1.8% for 48 today by another bank... I dont understand how they make money on such paltry rates.

brettw 04-25-2013 11:43 AM

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.

psudy 04-25-2013 12:08 PM

Quote:

Originally Posted by fouroheight68 (Post 1818726)
I was quoted 1.8% for 48 today by another bank... I dont understand how they make money on such paltry rates.

We don't. Thats more marketing for future income.

acurtis_ttu 04-25-2013 1:48 PM

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.

acurtis_ttu 04-25-2013 1:51 PM

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.

fouroheight68 04-25-2013 2:09 PM

Quote:

Originally Posted by acurtis_ttu (Post 1818755)
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.

Haha thanks, I just bought my first boat too... 2002 centurion elite v, cash! Bought 2 houses in this downturn too, maxed out my 401k, all at 27. Parents taught me well.

steezyshots 04-25-2013 2:11 PM

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.

steezyshots 04-25-2013 2:14 PM

[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!

fouroheight68 04-25-2013 3:08 PM

[QUOTE=steezyshots;1818766]
Quote:

Originally Posted by shawndoggy (Post 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!

I've averaged 5-10% return on my investment portfolio the past 12 mo's. 50%+ return since 08.

steezyshots 04-25-2013 3:17 PM

[QUOTE=fouroheight68;1818770]
Quote:

Originally Posted by steezyshots (Post 1818766)

I've averaged 5-10% return on my investment portfolio the past 12 mo's. 50%+ return since 08.

Highly unlikely that's guaranteed though. The market is also ripe for a big correction. And if you were in during 08 then you are barely even with the loss of 2008's market

fouroheight68 04-25-2013 3:35 PM

[QUOTE=steezyshots;1818771]
Quote:

Originally Posted by fouroheight68 (Post 1818770)

Highly unlikely that's guaranteed though. The market is also ripe for a big correction. And if you were in during 08 then you are barely even with the loss of 2008's market

I bought majority of my shares end of 08

shawndoggy 04-25-2013 3:43 PM

[QUOTE=steezyshots;1818766]
Quote:

Originally Posted by shawndoggy (Post 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!

Where? Also defined guaranteed.

psudy 04-26-2013 7:12 AM

Guaranteed by whom? The government of Greece?

psudy 04-26-2013 7:15 AM

Quote:

Originally Posted by acurtis_ttu (Post 1818758)
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.

You wouldn't believe all the regulations that are pouring out of Dodd Frank. Some good, but most are just a pain in the ass for underwriting.


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