This coming week, I am going to refinance my car. I have had it for about a year. I had originally financed it for 60 months. I am going to refinance for 48 months. This will not change the original period during which the car would have been paid off (well, may be 2 months or so because of the timing of the refinancing). However, the benefits are that when you buy a car financed for 60 months versus 48 months, there is a 1% difference in the interest rate for the loan (– that’s the case for the credit union from which I got the loan). So, I will save money due to the interest rate reduction. In addition, the monthly payment is going to be lower because the principal is (obviously) lower than the original amount, so I can afford to go 48 months than a year ago. (The shorter the loan period, the higher the amount, other factors help constant.)
Thus, I am going to be paying a lower monthly amount for the next 48 months but end up paying off the car as originally planned! I should have done this with my first car!
UPDATE 7/4/09: After emails back and forth with the credit union with which I financed my car, and a 40 minute call on Thursday, we closed on the refinance loan! The call was that long because the credit union is “out of town” – over 600 miles away, and some things were just better discussed over the phone. So, I will be paying 1.5% less interest. The payment has gone down about $9 per month. The refince is for 46 months which were remaining on my car. So, I am saving $414 in payments over the next 4 years. The 1% was normal reduction due to the amount being loaned was small over a smaller period of time compared to the original loan as explained above. 0.25% was a reduction due to being a member of the credit union for over 5 years, and the other 0.25% was due to having a credit card in good standing with the credit union. I also qualified for 0.25% for direct debit, but they can only give you a maximum of 0.5% additional reduction in interest. Not bad, considering I thought about it, blogged about it, and then tried it!
To rephrase “wealth is in restraint, not indulgence”, wealth is in saving, not spending.