Refinancing Our Ellie
Our Honday Element "Ellie". It's what inspired up to go camping!
Today, my husband refinanced our Honda Element. I wasn’t too thrilled about the idea at first, because it meant having car payments for a longer period of time. But after doing the math, we realized we would be saving money. Over all it means we will be paying a few months longer, but will be saving over $2,400!
Here is how it played out, you can be the judge and decide if it was a good move or not (I love feedback!)
- Our current auto loan APR was 9.98%. Not great, but when my husband first financed the vehicle, his credit was in the low 600′s, not very good.
- Our current auto payments with the 9.98% loan was $475 a month. We’ve owned the car almost 4 years, so this was a high payment for the length of time we’ve owned the car, and we still had 22 months to go. We owed $9,500 on the car.
- The new refinanced loan is now 7.25%, this is more than 2 percentage points less. Better credit score equals better APR.
- Our new payment will be only $319 for 33 months. This is the stinker part of the refinanced loan, the length of time. This adds almost a whole year onto the new loan. However, there isn’t a penalty for paying it off early. We can also save another half a percent on the loan if we set up auto-debits and we will definitely be doing this!
- I calculated my monthly savings: $156 saved per month. This equates to a savings of $3,432 over 22 months (the original length of the first loan). Since I’ll be paying about $1,000 more in interest, because the loan was extended, I deducted the $1,000 off the saved monthly amount. This leaves me with a total savings of $2,432.
Overall, I think this was a good move. I don’t like that we will be paying for the car longer. However, because there is no early payoff penalty, I might still be able to pay the car off in two years. If I don’t pay it off early, at least I know I’ll be able to stick the savings of $156 a month into savings. With a meager savings rate of 1.14% in two years I should be able to save: $3,786.21 based on Bank Rate’s simple savings calculator and compound interest. (This is if every dime of my savings get deposited into my savings account!)
What are your thoughts? Was this a good move? Should we have stuck it out with the higher payment and APR, but shorter time period?
Kudos to you and your husband!
This is exactly the type of activity that readers need to be aware of! By paying attention to the details, you were able to save thousands!
The key is to keep putting that extra savings per month back into paying off the car early like you wrote about!!!
.-= Money Reasons´s last blog ..Wealth Tip #4: Invest Money Saved on Food and Other Products =-.
I think that if you just continue making your old payments like normal, it will be a good move. Assuming you weren’t having trouble making them before, there’s no reason not to continue doing so.
.-= Jackie´s last blog ..What Will You Do With Your Tax Refund? =-.
@Money Reasons – Thanks for the encouragement. You’re right, the key to this whole plan working is putting the difference into our savings! I must be diligent.
@Jackie- Thanks for your opinion. I like that idea too, but it’s very tempting to put the difference into savings and watch my savings grow!
I am always reluctant to raise questions especially at 11:00 at night when I’m exhausted. What did I miss?
You had 22 payments left at $475 each? = 475 X 22 = $10,450
Now you have 33 payments for $319 each = 319 X 33 = $10,527
Are you actually saving or just increasing cash flow?
.-= LeanLifeCoach´s last blog ..Health Care For Kids When You Can’t Afford It =-.
@Lean Life Coach -Your math seems correct. What’s weird is that my balance on the previous car loan was about $9,500. But, you’re right that if I kept paying $475 per month for 22 more months, that would be $10,527! So, maybe I’m saving more than I thought. I am at least increasing my cash flow!
Not sure about your math? You would save $3,432 over the next 22 months, but then you have 11 more months of $319 payments which will offset that savings. Don’t stretch out your payments if you don’t have to. Sadly if you keep the same 22 month term you’ve only lowered your payment $13 per month (from $475 to $462) but it’s still a little extra gas money.
@David
Aren’t you glad I wasn’t your math teacher while you were growing up!?! Now, I did redo my calculations, and you’re right, I will end up paying more in the long run (about $77). However, my plan is to save the difference in the car payment, which is $156 a month for 22 months (the original length of the first loan.) With compounded interest I should be able to save $3786.21. Then, I do have to continue paying another 11 months, or $3,509. So total profit $277. But this factors in compound interest. So my first calculations were off. This wasn’t so exciting after all!
I think that Jackie might have the right idea about putting the same payment as your were under the old deal. Unless you can earn interest greater than 7.25% (not likely) it seems to make sense to pay off the car before adding the extra to savings…
.-= Kate´s last blog ..The Unicorn Code =-.
@Kate – Yes, I think you may be right. Sometimes my math is a little fuzzy. Thanks for commenting!