Refinancing my car

I’ve been tinkering with the idea of refinancing my car.  This ties into what I was talking about on Monday and really comes down to my desire to maximize cashflow.  Despite my hatred of debt, cashflow is king to me right now.  And looking at this as if I were a business, the best thing I could do would be to refinance the debt to a longer term at a lower debt rate, reducing my interest expense and my principal repayments each month.

The Stocks and Cents mobile

The Stocks and Cents mobile

So I’ve been working with a firm, Blue Harbor Auto (Not an affiliate link, I swear), to get this done.  So far, they’ve offered me very competitive rates on 48, 60, 72 and 84 month terms.  Considering I only have 51 months left, all of this seems a little ridiculous.  However, if we’re talking about investment return vs debt payment, there is something to be said.  The 84 month term would only carry a debt rate of 2.85% for me, a pretty big drop from what my current loan has (6%) and would free up $200 of monthly cash flow.  Even more ridiculous, I’d actually still pay less interest (only about $200, but still) than I would pay in the remainder of my current loan.  Even adding three and a half years to the loan term doesn’t reduce the financial benefits of refinancing.

The additional $200 a month would be a huge step forward for me.  It would increase my current savings dramatically each month and would hopefully grow at a much larger rate than 2.85%.  If my investments only grow at an annualized rate of 7% for the next 51 months, that extra $200 a month will add up to just under $12K.  Even if I keep my current loan and then invest the full value for the three years after, I still will not save that much money.  From a pure numbers stand point, this is a no brainer!

The good thing about this is that there are no prepayment penalties if I pay extra or pay the loan off early, so I can still tackle the debt while investing if I choose, just utilizing a much smaller debt rate.  After doing some number crunching here, this means that if I choose to pay the exact SAME amount that I pay now, I’ll actually have my loan paid off in 45 months, as opposed to 51.  So if I were to refinance at the 84 month rate and still pay my current amount, I’d actually save myself half a year of payments.

Chances are I will probably go through with refinancing my car through these guys.  They did, however, try to sell me on an extended warranty which I declined, so I think I figured out where they actually make their money.  I’ll keep you updated as I go through the general negotiations involved with this.  I’ve never done it before but I’m hopeful this is significantly easier than trying to close a bank account with Bank of America (for the record, it’s near impossible).

 

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3 thoughts on “Refinancing my car

  1. I can’t imagine paying a car loan for 7 years The only auto loan I’ve ever had was a 3 year term which was paid off last week.

    Maybe instead of investing the money saved, save it in account for the next car? $200*84 months = $16,800, not including any interest accrued on it. That ought to be enough to pay for the next car in cash and break the cycle of financing cars. That is what we plan on doing. By saving what used to be our car payment, in three years, we will be able to purchase a used compact for cash.

    • Yeah, I can’t either. It’s way too long but the cash flow adjustment is big enough to make me wonder.

      I’ve been considering that my investment account is really for my next car actually. Or at least could be used to pay off the loan once it reaches the right level. I’m still weighing my options at this point, I just don’t know!

  2. Thank you for taking the time to write a positive review on BlueHarbor. We appreciate and value your feedback.

    We hope you keep us in mind for the future.

    Best regards,

    Elaine
    BlueHarbor

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