Experiences with Auto Refinancing – HELP ME!

When I first decided to speed up the payments for my auto loan I didn’t want to refinance or research refinancing because my credit score wasn’t anything substantially higher than when the loan was created.  However, since I am part of the TransUnion Settlement and get my credit score and report free until September 2010 I check it every once in a while.

Upon reviewing my score last time (March 1) , I notice that my score has shot up double digits points to the mid to high 700s!  Once I saw that I figured I should look into auto refinancing.

My Current Auto Loan History

I loved my original car but it had to die eventually.  So I purchased a 2006 Mitsubishi Galant SE for approximately $18,000 with a 13.5% 72 month note in 2006.  I probably should have reviewed how to buy a car, but went with my father to a friend of his who owned the dealership.  Around January of 2008 I lowered it with the note holder with just a phone call to 8.9%, but it was another 72 month note.  So, currently, I am paying 8.9% on a 72 month loan, and there are approximately 46 months left on the note.  Current pay off is approximately $11,300.

My Experiences Requesting Auto Loan Refinancing Information

The first thing I tried was using LendingTree – but for some reason I received nothing back.  I thought this was really odd.  Next I used a text link from Transnion and I had 2 dealers calling me about buying a new car.  Frustrating!

So upon the advisement of one of the new dealers I went to my main bank, Chase, and applied and was PUMPED about the offer I received.

Chase Loan Offer

Wow!  Currently I am paying 8.9% so this will reduce my APR by 3.4%, but would add a few months to the note (kind of since I fully plan to pay it off early with accelerated payments, but we’ll look at those numbers a little later).  Also, the amount is a few hundred les than what is needed, but that isn’t a huge problem because it will just force me to pay a couple hundred to just pay off the noted.

So I figured, if Chase wants to loan me money for cheaper than my current note holder, Wachovia, why not at least give them a shot at my business (and money)!

Wachovia Loan Terms

Hmmm. A better deal than what I am currently paying, but not better than Chase.  Upon checking if I left the note with Wachovia the paper work would be less, and I wouldn’t have to pay an extra $400, and my origination fee would be a few dollars lower, but is that worth the extra APR?  Am I being Lazy and inefficient?

So I called both loan offerors and tried to play them off each other.  As I suspected neither really moved their numbers too much, but Wachovia was really playing up the ease factor.  So it comes down to math.

Math and Calculations of Auto Refinancing

Really the question is whether the ~1.3% saving (6.81% vs 5.5%) plus the added cost of putting another $400 into the loan out of pocket, plus the origination/registration fees ($75 with Chase vs $59 With Wachovia), make it all worth it.

So I loaded up my favorite site, Dinky Town.

With Wachovia

Monthly payment $269.55
Loan amount $11,300
Interest rate 6.800%
Term 48 months
Total of payments $12,938.12
Total interest paid $1,638.12

Wachovia did offer me a 55 month loan to compare apples to apples but it brought down the interest rate approximately .25% so I’ll ignore that option for the time being.

With Chase

Monthly payment $224.66
Loan amount $10,900
Interest rate 5.500%
Term 55 months
Total of payments $12,356.36
Total interest paid $1,456.36

It should look like Chase is the winner but with paying an extra $400 at the origination of the loan makes the decision a lot close, and for the hundred or two over the course of a 4 year loan, I think I may go with ease.

I won’t pull the trigger until tomorrow, but I need Comments and Help!  Is my logic faulty? Do you agree or disagree?

14 Responses to Experiences with Auto Refinancing – HELP ME!

  1. Those 2 are so close it’s basically a wash. There’s always option C – trade in the car on something new(er) and maybe you’ll get a lower interest rate on the new car? Maybe to a quick Google search for 0% financing or new car deals. A $15k loan at 0% would be $250/month for 60 months. Just a thought.

    I remember when I refinanced my Jeep a few years ago the rates for refi were always higher than new cars.

    PS – just read your earlier 2010 goals post where you said you wouldn’t keep the car much longer anyway, so maybe this is your chance?

    • Since writing that (I may have linked the wrong post, but thats what I get for writing posts at 1am) I have decided to keep the car for the time being and pay it off quickly.

      I would LOVE to do Option C, except my car is so underwater!

  2. I’d go with chase, but make additional payment up to the Wachovia amount (actually, I’d round it up to either $275 or $300). That way you still get the lower interest rate, but reduce the life of the loan so that it’s even shorter that the Wachovia term… Chase is very reputable (as I’m sure you know), but I’d still make sure there isn’t any pre-payment penalties…

    I like your mouseover highlights, nice touch :)

    • Regardless of choice I am going to make extra payments. I just don’t think the extra work is worth the $200 difference or whatever it is over the course of a 4 year loan

  3. I agree with Money Reasons. And I think I’m going to try the same thing – my FICO score as gone up in the 1 1/2 years since we got out used-car loan at a crappy 10.5%!

    • You should try! You might be SHOCKED at the offers that come through the pipeline. Let me know if you need help

  4. Ugh, I hate paying for refinancing costs. That’s a pretty high rate Evan.

    You’ve got to go with OPTION X, which is to have no loan at all on a depreciating asset and pay the damn thing off.

    If you are at liberty to reveal, do you have some extra cash funds to pay it off? For your ref, I was at the dealer this past weekend and the highest rates they were offering were 6.9%.

    • Dude! I tried to explain my problem of paying of a depreciating asset fast on DFA:

      http://www.debtfreeadventure.com/debt-help-debt-repayment-plan-evan-answered/

      But no one got it. And then I came to the realization I want to keep my car for a while, so it made the point moot.

      I have the liquid funds, but it would put a hit into my liquid savings, that right now I am not willing to do. I get the whole argument that I am losing money from what the savings account is paying me vs. paying the loan – but a guy has to sleep at night.

  5. OK. Well, your problem is just like the house mortgage refinancing issue I talk about in the link below. Go to the middle of the article and calculate your “break even cost” using the Chase refi. You’ll see what I mean.

    Once you do, you will take the emotion out of the equation and go with the most rational decision.

  6. Great example of where Net Present Value comes in. I use it for everything. I actually used it for a mortgage refi post with various rates, points, closing costs (many variables) and proved which one clearly came out ahead. I know dropping links is annoying, so shoot me a note if you want my excel model and I’d be glad to give my 2 cents.

  7. Evan – Sorry to be blunt but with all due respect… It’s a car, not a child. Sell it, pay off the note and drive a hoopty until you can pay cash for the car you want. Until you are out of debt and have the savings any security you have is just smoke and mirrors.

    • I am cool with bluntness! In fact, someone told me that my writing style was slightly contentious which was the nicest way anyone has ever called me an ass before!

      All that being said, the car is not the same as a child (maybe my old car was, but not this one lol) and I get that, but to be honest your suggestion is not going to happen. I am just not that extreme of a guy, nor do I want to be.

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