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Got a refinance. what's your recommendation?


loki

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So I refinanced my 6 recently, from 4% to 2.24%. and from 5 years to 5.5 years.

I was paying a little more than required previously to round it off at $500/month.

Right now I'm planning to pay $200/2weeks, but the required is ~$360/month.

 

what would you do?

pay it off faster....

pay the minimum and bank the savings...

something else?

 

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If you are keeping the 6 beyond 5.5 years, the only thing that makes financial sense is paying the lowest grand total possible.

That said, auto loan interest is a strict minimal portion of a payment, so paying extra (assumedly toward the principal) isn't going to do anything near what doing the same on a mortgage will. Ask the lender for an amortization schedule for your loan and you can crunch the numbers yourself.

Edited by balthazar
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the balance is just under $22k

I've looked at the amortization schedule, after 4 years, the interest is quite minimal.

I will plan to keep that long as long as it meets my needs.

Edited by loki
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Pay the minimum because the rate is so low.  The interest you'll pay on a $22,000 car loan at 2.24% is $1,382.   Even if you got just 1% return on a savings account in 65 months you'd make $1,218.  If you could get a 2% return it is $2,491, you make over $1,100 by having the $22,000 in a CD at 2% and paying the monthly payments.  That is assuming you had a lump sum in the bank and could pay it off now or make payments. 

 

Even if you are just putting the extra $100 a month in the bank, better to do that, because interest rates will eventually go up, in 4 years your car loan will still be 2.24% and savings accounts might be 3% by then.  No sense paying off a loan quickly right now when loan rates are at historic lows. 

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Bank rates probably are not going to go up much in the next couple of years.  If you have any debts with a higher interest rate, definitely pay those off first.  If you have the possibility of having a large purchase in the next couple of years and it makes sense to have cash on hand, such as a down payment for a house or wedding expenses, go ahead and save up for those.  But if the money is just going to sit in the bank and get 1% interest, you might as well pay off the car.

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The big down payment is something i'm considering. This is assuming things get better with the job and things only improve with the g/f.

I agree savings rates might only double in the next few years.

 

Right now i changed my auto pay to round up to the nearest $10, split the payment in 1/2, and doing that every 2 weeks. making just over 1 extra payment a year.

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  • 2 weeks later...

I'm going to go the opposite route and say pay more like you have been doing. For a few reasons.

 

One, you never know when your driving needs may change. With a 22K payoff, you have little to no equity currently. If you can afford it, the higher payment will help you get into a position of equity quicker, should you need to trade your current car in or sell it for any reason.

 

Two, the more used to making a higher payment you are, the easier it is to swallow when you upgrade and get a vehicle that may have a higher payment than your current one. It's kind of a nice primer to getting something more expensive in the future.

 

Three, that little extra money won't affect your monthly budget hardly any, while over time, it will have a considerable affect on your payoff.

 

Just my .02

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