Advice needed for refinancing a car loan

Discussion in 'Homesteading Questions' started by clovis, Jan 29, 2004.

  1. clovis

    clovis Well-Known Member

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    We are considering refinancing the wife's car loan. The interest rate will be reduced significantly, saving us at least $20 a month. We will not be extending the loan in any way. We will not be borrowing more than the pay off amount of the current car loan.

    Any advice?

    Any pitfalls or things to look out for while doing this??????

    Thinking of doing this this afternoon or tomarrow morning.

    clove
     
  2. RoyalOaksRanch

    RoyalOaksRanch Royal Oaks Taxidermy

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    Personally I wouldnt do it just to save 20 a month. Youll get hits on your credit, which lowers your credit score, and they do have fees that you pay for "refinance charges" IN affect the fees and time spent with make that 20 a month a 0...... Id just leave it alone...
    Now if it saved you 100 a month, Id be all over it...
     

  3. Kirk

    Kirk Well-Known Member

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    It seems to me that this would be an okay move as you have mentioned being nearly debt free. I am not aware of any refinance charges associated with auto loans. Maybe if it were through the same lending institution but I'm assuming you are moving it to a credit union or something.
    Kirk
     
  4. pumpkinlady

    pumpkinlady Well-Known Member

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    If there aren't any fees involved I would do it. $20.00 a month adds up quick. Better in my pocket than theirs. Although I would use that $20.00 every month and put it towards the principal of the loan. That also adds up fast and you will be done paying on the loan that much sooner. Good luck!
     
  5. Get a home equity loan and pay the car off. Then deduct the interest paid back to cancel the home equity borrowings on your income taxes.
     
  6. clovis

    clovis Well-Known Member

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    OK, Here is the deal.

    Will save $44 a month, and we owe another 32 months on the wife's car. "Doc" (documentation) fee of $95. I played hardball with the loan officer and told her the $95 doc fee was a deal breaker and that we would not pay that fee.

    Loan officer called back one hour later and said they would waive the $95 fee all together if we opened a checking or savings account with them. (Free checking). This is great, we were thinking of opening another checking account anyway!

    Appointment is set for 2:00 tomarrow.

    Now the only question is:

    Keep the current amount of payment $272 for fewer months (26 months estimated) OR

    Take the new lower payment of $228 for 32 months (original note term) and apply the $44 savings to that amount each month?????


    Thank you!!!!!!!

    clove
     
  7. clovis

    clovis Well-Known Member

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    Forgot to mention that total interest savings looks to be about $1408.

    Yes, One thousand, four hundred and eight dollars !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    YIPPEEEEEEEEEE!!!!!!!!!!!!!!!!!!!
     
  8. RAC

    RAC Guest

    As long as it doesn't cost you anything (no prepayment penalties), go for the lower payment on the documents, but continue to make the higher payment. If you get into a bind later, that $44 might make a difference between squeaking by and making the payment, or not making the payment and getting an unnecessary ding on your credit rating.
     
  9. Kirk

    Kirk Well-Known Member

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    How on earth can the tax deduction for an equity loan be worth having the loan in the first place? Lets look at it, If you have a loan of $50,000 at 5% you would pay $2500 in interest to the bank which you can then deduct from your taxes. Now if you had to pay taxes on this $2500 because you didn't have the loan and you were in the 25% tax bracket you would pay $625 in taxes. I guess if you really hate the government you can send the bank $2500 to keep from paying $625 in taxes. Hey here is an idea! How about you give the $2500 to your favorite charity and get the same tax break. Why would you want to put the place where you live in hock just to pay off a car which will be paid off in 26 to 32 months anyway. Home equity loans are only a good deal for the bank.
    Kirk
     
  10. Kirk, your understandings of managing finances are dismaying. The situation is that they have a car loan. They intend to pay the loan off and not to forfeit. The car loan is typically at a much higher interest rate than a home loan. A personal car loan is not a deductible item on a tax return. Borrowing the amount of the car loan using a home equity loan puts them no further in debt. The home equity loan is one of the more cheaper loans that one can have. The interest paid on a home equity loan is deductible. Therefore, since the loan will be repaid in a relatively short period of time it really does not matter where the obligation exits. If their loan could not be repaid from earnings, the car could be sold and the debt settled on the home. It would be the same as losing the car to the repo man. Just the car would be gone and the home remains intact and meanwhile you saved some money.
     
  11. Kirk

    Kirk Well-Known Member

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    Hey Unregistered, if you are going to slam me why don't you log in first?
    So, what happens when the home equity loan cant be paid from earnings and the car can't be sold fast enough or for enough money to pay the loan off? Oh thats right they FORECLOSE on his home, you know the place, where his wife and kids LIVE. I'm guessing that with the numbers he has given his tax savings would be around $200 a year for three years or $600 total. If you are willing to put your house at risk of forclosure to save $200 a year, go for it.
    From another thread clovis has mentioned that he is debt free other than this car loan, so I am assuming that he has no mortgage.
    As far as my dismaying understanding of finance managment goes, I think I understand that putting ones house at risk to save a few bucks on taxes is foolish. Borrowing your way out of debt is not the way to eliminate debt.
    Kirk
     
  12. RAC

    RAC Guest

    Hi Kirk,

    I think you misunderstand. The car loan is already there. Clovis can either continue to pay at the old rate, or refinance it down to a new, lower rate. Clovis stated that there would be no refinancing costs. The other poster was just pointing out that all things being equal, you get more bang for your buck by using a home equity loan (rather than the car or other finance company loan), not only can you get really low rates right now, you can also write off the interest on your taxes. Even if you don't make enough money to write off the deduction, because the loan is secured by your home, you still save more money than by going with a car loan.

    Imho, car loans in general are bad, because cars do not appreciate, they lose value immediately. If you can't pay cash outright for a car, find some other means of transportation (carpool, bus, etc.) until you can save up the money. If you mainly use a car to get to and from work, $25 a week to fill someone else's gas tank when you carpool with them is a LOT cheaper than taxes, insurance, maintenance/repairs, interest to the bank, etc. on a vehicle that you own.

    If Clovis is debt free, he will be able to use the money saved from the refinancing to pay off the loan early, which is a good thing. And, should he get into a temporary bind, if he goes with the original term and the lower payment, if he needs that $44 he saves per month for some emergency medical co-pay, for example, he can still make his regular payment.

    Btw, the same "what if" scenario could be used with "what if you get behind on your property taxes?". You still would lose the house, the state doesn't care if it is paid off or not....I think we are all operating under the assumption that Clovis fully intends to pay off the loan, and were just pointing out that it might be more advantageous for him to do it this way rather than another way.

    Hope this helps.
     
  13. Kirk

    Kirk Well-Known Member

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    Most states will give you 3 to 5 years to catch up your property taxes, will the motgage company give you that long to get back on your feet?
    The loan rates from my credit union right now on used cars is 8.5 percent so not that much higher than the equity loan. Yes I know that there are tax advantages if one does have enough deductions to take them. I'm just saying that it would seem to foolish to put the place you live up as security for a car loan.
    Kirk
     
  14. RAC

    RAC Guest

    Home equity loans right now are like at 3%... with the money you save, you'd be out of that loan in no time.

    Some states may give you 3-5 years to catch up on your property taxes, but not all of them. You never own your house, you just think you do....:)

    Clovis is debt free, from what he said in his post, and this is not a lot of money by any means. You seem to infer that Clovis is one paycheck away from disaster, and I don't see that from his posts at all. I don't see the home equity loan as being that risky at all, not for such a small amount.