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?