Doing a car refinance
09-02-2010, 10:26 AM
#21
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Your estimates are a bit exaggerated, but your point is correct.
For example: 3 year loan on $15k at 3.5% interest
Payments are ~$440/mo for 36 months, totaling $823 in interest
Payment 1 is $44 interest, $396 principal
Payment 12 is $31 interest, $409 principal
Payment 24 is $17 interest, $423 principal
Payment 36 is $1 interest, $439 principal
Total interest is $823
After 12 months, one has paid $406 in interest or about half of it in 1/3 the loan duration
After 24 months, one has paid $723 in interest, or about 90% of it in 2/3 the loan duration
The numbers change, of course, based on loan amount, duration, original interest rate, and revised interest rate. I don't know a cheaper way to borrow money though, so I've refi'd 3 of our cars to fund other things.
For example: 3 year loan on $15k at 3.5% interest
Payments are ~$440/mo for 36 months, totaling $823 in interest
Payment 1 is $44 interest, $396 principal
Payment 12 is $31 interest, $409 principal
Payment 24 is $17 interest, $423 principal
Payment 36 is $1 interest, $439 principal
Total interest is $823
After 12 months, one has paid $406 in interest or about half of it in 1/3 the loan duration
After 24 months, one has paid $723 in interest, or about 90% of it in 2/3 the loan duration
The numbers change, of course, based on loan amount, duration, original interest rate, and revised interest rate. I don't know a cheaper way to borrow money though, so I've refi'd 3 of our cars to fund other things.
I was just trying to make a point, and if people care enough- they can do the math themselves. You did your math/research and knew what you were doing and the WHY you had to do it, thats the main reason. Its making decisions without knowing all the details that gets you into trouble Again, any, but especially financial decisions should be looked over carefully 7 times, before you sign once.
09-02-2010, 05:15 PM
#23
Refinance a car loan? Really? Tighten up your spending, pay off the car early, put your "monthly payment" in a bank account and buy your next car with cash. I did it and will never "buy" another car if I have to finance it. It requires sacrifices but being in debt is like being a slave, the money you earn isn't even yours. Get out of the debt habit.
09-03-2010, 12:14 AM
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holy cow! AND I THOUGHT my 6% was high lol. Id rather just pay off my car quicker than spend the money to refinance. 5 year loan and hope to pay it off in half the time....
09-03-2010, 07:16 AM
#27
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I'm sorry, but buying anything with 23% interest is probably the dumbest decision ever... I mean there are situations where you *have to* if you got fkced or something really bad, but dam... I feel for ya. Yeah don't got to bank, go to a local credit union.
09-03-2010, 12:09 PM
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This is how it works, and this is WHY it will hurt you to do that so late in the process.
First 3 years or so you're paying off interest on the car. So after 3 years, w/e your rate was, even if 15%, you're prob already almost paid it off.
By doing another refinance, even thought they are saying you will save 15 dollars a month and then at the end you'll save a total of w/e amount - the way they calculate that is 15 times 36 payments left.
You will once again be back to paying 95% to interest and 5% to principal, means you'll be paying interest for another 2 years, and then start to pay off your car. You WILL pay more interest infact, and if something happens, or if you need to sell the car, trade it in, get in accident and insurance payoff- means you'll still owe a lot of your car.
Right now you'll be making payments almost 99% to the actually cost of the car, means 95 cents of the dollar are going to principal, why refinance to lower % when you already paid off the interest pretty much? Think about it, and do your own math. Its their job to have you look at one side of the coin, and the way they do math makes it seem good, but really, its not.
First 3 years or so you're paying off interest on the car. So after 3 years, w/e your rate was, even if 15%, you're prob already almost paid it off.
By doing another refinance, even thought they are saying you will save 15 dollars a month and then at the end you'll save a total of w/e amount - the way they calculate that is 15 times 36 payments left.
You will once again be back to paying 95% to interest and 5% to principal, means you'll be paying interest for another 2 years, and then start to pay off your car. You WILL pay more interest infact, and if something happens, or if you need to sell the car, trade it in, get in accident and insurance payoff- means you'll still owe a lot of your car.
Right now you'll be making payments almost 99% to the actually cost of the car, means 95 cents of the dollar are going to principal, why refinance to lower % when you already paid off the interest pretty much? Think about it, and do your own math. Its their job to have you look at one side of the coin, and the way they do math makes it seem good, but really, its not.
If the length of the loan is exactly the same, then the one with the lower rate will still save money. He has 3 years remaining on the loan and if he matches it with a 3 year refinance at the lower rate. He'll be paying lower interest though out the loan.
Yes, it's true that you pay more interest at the beginning of the loan. This is due to amortization. But he's already paid X amount of the balance, and has Y remaining.
With a 6 year loan, he's probably still pay 60 percent on principal and 40 percent on interest depending on the interest rate.
09-06-2010, 03:46 PM
#29
I think a lot of you are over-complicating this.
There are 3 variables here:
1) amount owed on vehicle -- not changing
2) time -- not changing
3) total amount paid -- LESS
It's not mathematically possible to end up "paying more in interest" given the variables above.
The only valid argument is if he wrecks it in say a year, he would have paid off slightly more (thus owe less) if he hadn't refinanced. But then again, this assumes insurance won't cover it. Yes, there is some risk, but weighing the risk/reward of saving vs losing money after factoring in probability of having insurance not cover the vehicle is...damn, what was I saying?
1) amount owed on vehicle -- not changing
2) time -- not changing
3) total amount paid -- LESS
It's not mathematically possible to end up "paying more in interest" given the variables above.
The only valid argument is if he wrecks it in say a year, he would have paid off slightly more (thus owe less) if he hadn't refinanced. But then again, this assumes insurance won't cover it. Yes, there is some risk, but weighing the risk/reward of saving vs losing money after factoring in probability of having insurance not cover the vehicle is...damn, what was I saying?
09-06-2010, 04:05 PM
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I am in shock at this thread - I did not realize how many people are paying interest on their car.
My rule is: ALWAYS pay cash when buying a car. If I can't, I don't buy it. If you absolutely have to finance, then get a HELOC on your house and use the HELOC cash to buy the car. This has other benefits, such as a lower interest rate and the ability to pay it off at any time (and others).
What happens if you get in an accident and the car is wrecked but insurance doesn't pay much? What happens if you need to repair something out of warranty? Those expenses would scare me to death if I couldn't afford a car payment...
My rule is: ALWAYS pay cash when buying a car. If I can't, I don't buy it. If you absolutely have to finance, then get a HELOC on your house and use the HELOC cash to buy the car. This has other benefits, such as a lower interest rate and the ability to pay it off at any time (and others).
What happens if you get in an accident and the car is wrecked but insurance doesn't pay much? What happens if you need to repair something out of warranty? Those expenses would scare me to death if I couldn't afford a car payment...
09-06-2010, 05:46 PM
#31
I am in shock at this thread - I did not realize how many people are paying interest on their car.
My rule is: ALWAYS pay cash when buying a car. If I can't, I don't buy it. If you absolutely have to finance, then get a HELOC on your house and use the HELOC cash to buy the car. This has other benefits, such as a lower interest rate and the ability to pay it off at any time (and others).
What happens if you get in an accident and the car is wrecked but insurance doesn't pay much? What happens if you need to repair something out of warranty? Those expenses would scare me to death if I couldn't afford a car payment...
My rule is: ALWAYS pay cash when buying a car. If I can't, I don't buy it. If you absolutely have to finance, then get a HELOC on your house and use the HELOC cash to buy the car. This has other benefits, such as a lower interest rate and the ability to pay it off at any time (and others).
What happens if you get in an accident and the car is wrecked but insurance doesn't pay much? What happens if you need to repair something out of warranty? Those expenses would scare me to death if I couldn't afford a car payment...
09-06-2010, 08:09 PM
#32
Not to mention we're kind of in a housing crunch at the moment, making "home" equity loans difficult/impossible to get....
To suggest that financing a car is *never* a good decision is a bit arrogant. I could have bought my Z in cash, but chose not to so as to keep my "safety net savings" on the high side -- a wise decision in this economy, if you ask me. I have no problems spending an additional $1k in interest over the course of 5-6 years for the peace of mind of knowing that if I lose my job I have roughly another year's worth of living expenses covered. I was able to finance my Z for 2.5%, in case it matters...
To suggest that financing a car is *never* a good decision is a bit arrogant. I could have bought my Z in cash, but chose not to so as to keep my "safety net savings" on the high side -- a wise decision in this economy, if you ask me. I have no problems spending an additional $1k in interest over the course of 5-6 years for the peace of mind of knowing that if I lose my job I have roughly another year's worth of living expenses covered. I was able to finance my Z for 2.5%, in case it matters...
09-07-2010, 07:15 AM
#33
Not to mention we're kind of in a housing crunch at the moment, making "home" equity loans difficult/impossible to get....
To suggest that financing a car is *never* a good decision is a bit arrogant. I could have bought my Z in cash, but chose not to so as to keep my "safety net savings" on the high side -- a wise decision in this economy, if you ask me. I have no problems spending an additional $1k in interest over the course of 5-6 years for the peace of mind of knowing that if I lose my job I have roughly another year's worth of living expenses covered. I was able to finance my Z for 2.5%, in case it matters...
To suggest that financing a car is *never* a good decision is a bit arrogant. I could have bought my Z in cash, but chose not to so as to keep my "safety net savings" on the high side -- a wise decision in this economy, if you ask me. I have no problems spending an additional $1k in interest over the course of 5-6 years for the peace of mind of knowing that if I lose my job I have roughly another year's worth of living expenses covered. I was able to finance my Z for 2.5%, in case it matters...
Damn I but OP didn't expect this thread to get so deep
09-07-2010, 08:32 AM
#34
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refinanced my 07' Z friday ...
payment went from $415 to $357
Now at 3.75% interest instead of 7.65%
.. length and amount stayed the same .. and I dont have to make a payment this month (new payments start next month) 
................
as for 23.4% interest .. my butt would be walking
payment went from $415 to $357
Now at 3.75% interest instead of 7.65%
.. length and amount stayed the same .. and I dont have to make a payment this month (new payments start next month) ................
as for 23.4% interest .. my butt would be walking
Last edited by Adrians07Z; 09-07-2010 at 08:34 AM.
09-07-2010, 10:37 AM
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I am in shock at this thread - I did not realize how many people are paying interest on their car.
My rule is: ALWAYS pay cash when buying a car. If I can't, I don't buy it. If you absolutely have to finance, then get a HELOC on your house and use the HELOC cash to buy the car. This has other benefits, such as a lower interest rate and the ability to pay it off at any time (and others).
What happens if you get in an accident and the car is wrecked but insurance doesn't pay much? What happens if you need to repair something out of warranty? Those expenses would scare me to death if I couldn't afford a car payment...
My rule is: ALWAYS pay cash when buying a car. If I can't, I don't buy it. If you absolutely have to finance, then get a HELOC on your house and use the HELOC cash to buy the car. This has other benefits, such as a lower interest rate and the ability to pay it off at any time (and others).
What happens if you get in an accident and the car is wrecked but insurance doesn't pay much? What happens if you need to repair something out of warranty? Those expenses would scare me to death if I couldn't afford a car payment...
By this logic, one should never purchase on home on credit. What if the value goes down (millions of homes are underwater currently), what if you lose your job, what if you need a new roof? A house is a bigger expense than any auto will be. Millions of people have lost their homes because they couldn't afford their payment anymore. If they paid cash, it wouldn't matter.
09-07-2010, 05:51 PM
#37
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I bought the car when I was 21, I don't have credit cards mainly because of the fact that NO ONE will approve me. I have tried everywhere, and what sucks about it is, that I think it might be due to credit card fraud on an account I didn't pay attention to, someone charged up $300 at carl's jr. on my account in 1 day! To make a long story short, the account ended up in collections and I didn't find out until it had been reported to the credit agencies already. I also ended up having to pay the 300, then they reimbursed me after the investigation.
Last edited by klaze1; 09-07-2010 at 05:52 PM.
09-07-2010, 09:53 PM
#38
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I bought the car when I was 21, I don't have credit cards mainly because of the fact that NO ONE will approve me. I have tried everywhere, and what sucks about it is, that I think it might be due to credit card fraud on an account I didn't pay attention to, someone charged up $300 at carl's jr. on my account in 1 day! To make a long story short, the account ended up in collections and I didn't find out until it had been reported to the credit agencies already. I also ended up having to pay the 300, then they reimbursed me after the investigation.
15 months later I get approved for 3.75% (house, car, credit card, furniture credit card, etc added to credit report)
I'm 20 now .. bought a house and all the stuff in it, live on my own, support myself completely, had a hard time getting a credit card ... couldnt even get one with a cosigner .. make around 45K a year with 760 credit score and cant have a credit card
only way I found to get one was through my credit union .. has a $500 limit .. just reset it online when it gets towards full (never use it for a loan, always gets paid off in full .. I look at it as a debit card that goes into one bill instead of a million transactions on my bank statement)
09-07-2010, 10:36 PM
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Like I said, you buy with cash.