So, my car is great. I like it, it still is the bees knees.
But I hate the payment. It’s more than it should be, because I didn’t shop around the financing and I didn’t have great credit when I bought it. It’s at a very high interest rate (~12%) and it requires me to carry full coverage insurance. Between the car payment of $366.21 and the insurance bill of $120 (this covers the car in full as well as the scooter, but also includes a discount because I have my homeowners insurance through them), and regular maintenance – that’s $500 a month. If I drove for my job, or had a long, arduous commute, I would be happy to pay it, I think the peace of mind of a new car is well worth $500 a month.
But, I don’t. I’m four miles from work. I come in in the morning and leave in the afternoon. I ride my bike sometimes, I scooter sometimes, so the car is essentially unused for a huge portion of the week. But, I like being able to go to the grocery store and pick up a huge package of toilet paper and not have to balance it on my bike rack, or see a deal at Fry’s Electronics and shoot off down to Wilsonville. So I like having the car, I just don’t like the cost of financing.
So I need to figure out the best way to pay the car off. If I can pay the car off, that frees up $366.21 a month (nearly enough to max out an IRA), and I can probably reduce my insurance payment $20-40 a month, and still have adequate coverage (I no longer think that strict liability insurance is enough).
So, there’s a really strong motivation to get the car paid off early. I don’t think that it’s a “bad debt”, per se, but it is certainly leaning that way after my little cost/benefit analysis. The question is whether or not it’s worth it to refinance the loan, which will have fees, or just do some self-guided accelerated payment stuff (which takes time every month, because additional payment is simply applied to interest, not principal, and I’ll have to call to fix that).
I have 42 payments left, during which time I’ll pay $2850 in financing.
If I refinanced and got a good rate (currently I’m seeing used rates around 8%) and kept it at 42 payments (which wouldn’t really be possible, but I’m just spitballing) I’d lower my payments to $340 a month, and reduce the amount of total interest paid to $1860. However, it’s likely that a loan origination fee would significantly impact this “savings”. Plus $26 a month is good when you save it on a cell phone bill (yay) but not when it requires a shit-ton of hassle.
Refinance with same timeline and lower payments: Not really worth it.
If I refinanced and got a good rate at 36 months (essentially paying off the car 6 months early), my payment would go up to $390, and the total interest paid would be $1590. The extra money in the payment would add up to $896 over the 36 months, and the $366/month I won’t have to pay for six months at the end adds up to $2196. Leaving $1300 to go into savings.
Refinance with a 36 month loan and increase payments marginally : OK, but only if loan origination fees and whatnot don’t eat up my marginal savings.
If I refinanced and got a good rate at 24 months (paying off the car 18 months early), my payment would increase to $570 a month. Which isn’t doable. So fuck that.
Refinance with a 24 month loan and increase payments dramatically : Fuck that.
If I don’t refinance, and bump my payments to $450 (applying the entire overage to principal), I’ll shave off 10 payments (nearly a year, or $3660, but balanced against the $2688 in extra payments I made in the 32 months prior, just under a grand to the good), and the total interest paid will be $2195 ($650 saved in financing).
Regular Extra Principal Payments : Probably the most worth-it strategy so far, but still not great.
Lesson learned here? Get the right loan the first time. Refinancing is messy and doesn’t usually save you that much money. Accelerating payment on a shitty loan doesn’t really save that much money either.