Tags Posts tagged with "Auto Loan"

Auto Loan

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Recently, I had to purchase a car on short notice and a quick trip to CarMax solved my situation — same day.

Great experience all around.

When it came down to do the financing, the first question I was asked was “How much are you going to put down?”

They didn’t seem taken aback when I said, “Nothing” but, well, I could tell I was being judged.

I’m sure they hear something along those lines all the time…so I followed it up with, “Always better to use someone else’s money…”

Evidently skeptical of my ability to pay, they proceeded to tell me that the larger the down payment, the better the finance offer would be and how it would lower my monthly payments and, well, you know all that stuff that they use to pressure you to get a larger sum of money up front.

Yeah, not gonna work with me. Besides, I didn’t have a dime (or checkbook) on me.

When they submitted my loan inquiry (via computer), I got the vibe that they thought, yeah, we’re not getting a sale today.

No one is going to finance this deadbeat that came walking in here looking to buy a car in under 30 minutes with nothing down…

As the hourglass on the computer continued to spin from top to bottom for over 5 minutes, they asked me, “Are you sure your mortgage is only $498 per month?”

It was one of the few questions they’d asked, besides my social security number, that they’d use to check in on my ability to pay.

“Wow, it’s never taken this long…”, they exclaimed and even followed with “you should put everything out up front, they’ll find it if you don’t” as if that was the reason it was taking so long for a response to be returned.

Yeah, they were totally convinced I’d wasted their time, I could tell, even asking if I’d reconsider making a down payment under the guise, “It makes the loan more attractive to the lenders we use…”

At this point, while I too was begining to sweat it, I was still confindent in my ability to qualify for a loan. Extremely.

Following an epic 10 minute wait, where I had started to think the computer had just frozen — boom!

A loan offer was displayed.

I could tell by the salesman — and his trainee watching the entire process — that they thought something was wrong.

Not only was it from CarMax’s in-house Auto Finance department (and not some bank I’d never heard of) but it didn’t make sense to them.

The top line on the screen displayed a loan of $19000 at a rate of 0.99% for 36 months.

I’m no loan shark and I’ve never been involved in the auto sales industry, but I’m pretty certain that’s a pretty sweet offer for a used car loan.

As they were preparing to click and accept the loan, I stopped them and asked if I could push it out to 48 months. Or even the max, what was the max?

They cautioned me that extending the term may lower my monthly payments but the rate on the loan offered would jump — it would be a poor decision to turn down the *AMAZING* rate offered sitting on the screen.

I went in to my “offering financial counter-advice” mode and explained that cash flow *is* everything.

My primary goal today was to buy this car with ZERO money of my own and to secure the lowest the monthly payment possible…

Since this a simple interest loan being offered — I’d alraedy confirmed that as well as the lack of a pre-payment penalty — the term of the loan holds no weight, nor will the higher interest rate (relatively speaking — as long as it doesn’t jump 10% or something).

With a longer term, I’ll have the added flexibilty of a lower monthly payment (which means MORE cash in my pocket each month) and still have the option to pay it off, as I plan to, in 36 months, 48 months, or whatever without any penalty.

Reluctantly, they turned down the offer sitting there on the screen, thinking I’d been offered a rate I didn’t qualify for anyway, and set it to seek a loan with a 72-month (the max) term.

Less than 30 seconds later, another offer displayed on the screen from the same in-house lender.

72 months at 3.9% and a minimum monthly payment of $300.76.

Offer accepted.

Twenty minutes later, I drove out of there in a new (to me) car without spending a dime.

So, here’s the deal…

Going in, I knew that my Experian Score was 846 out of 850.

I can not stress enough how having good, err, great credit is.

It’s so rare these days, it seems, but I’ll tell you, it opens such better financial opportunities and, frankly, a boosted self confidence walking in too.

I’ll admit, I was a little worried as it took so long for an offer to come through but I knew, without a doubt, that I’d qualify for a loan.

A good loan.

Had I accepted the initial offer, 36 months at 0.99%, my monthly payment would have been over $525 per month. I don’t recall the exact amount but I sure as hell wasn’t going to pay over $500 per month for a used Ford, that’s for certain.

The offer that I did accept with the longer term and higher rate landed me a monthly payment of just over $300 per month.

Still a sizeable sum, yes, but a sum that allows me an additional $200 per month to do with what I please.

Wanna know the crazy part?

If I happen to send them that extra $200 each month, in addition to my $300 minimum payment, I’ll have the car paid off in 40 months — just four months longer than the original offer.

To me, having the ability to “cut” $200 off of my bill anytime I please is well worth an additional four months of payments on a loan…three years from now.

So, the moral of the story?

Great credit may earn you super low rates…but don’t get fishhooked by the rate!

Yes, your credit history earned you that rate…but you can do better!

Push the term out, use the savings to add to whatever it is you’ve been doing that earned you that credit score, and you’ll end up paying off the loan years early *and* have more money in your day-to-day finances to make additional wise manouevres.

This is the best piece of advice I wish I’d learned before figuring it out on my own.

Yes, yes, I know people “payment” shop when looking to buy or, worse, lease a car but it’s what you do with the savings you gain from the lower payment that makes the difference.

Ideally, you want all of your required monthly payments to be as small as possible so as to maximize your available cash at all times.

I wrote a post back in 2015 that nails it on the head when it comes to paying your debts back effectively and efficiently.

Never allow yourself to become a slave to your debts — you can set the timetable and payment schedule.

If you’re disciplined enough, you really can have your cake and eat it too!

Look at me — I have a new car, a low payment, and cash in my pocket.

Can’t get much better than that, can it?

History repeating?

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Swagger WagonAhhhh…that awkward period when you’re paying off a loan and you either go over by a few cents by paying that final payment before the final due date or come up short by a few cents cause the lender tacked on a few more finance charges right at the end…

Daily interest charges and waiting for payments to clear always gets tricky.

I think it was when I paid off the BMW, my monthly statement provided a “Payoff Amount” and as I was nearing the end, I sent them that exact amount.

Turns out, since I paid it when I received the bill and NOT when the payment was due, I’d overpaid by a few dollars.

No joke, it took over two months for them to refund me my over payment and send the title too.

My assumption is that before they give up the title, the books need to line up…and they didn’t.

Of course, this was all way before bank websites were as e-friendly as they are now.

And, as luck would have it, my auto loan and my checking account are both with Bank of America.

The site claims that I can make same day payments but anytime I do that, it’s far from “instant” and still takes a day or two to show up as having actually happened on both sides.

Usually they take my money out of checking first…and then a day later apply it as a payment to the loan.

Same day. Yeah, right…

Probably some sort of federal banking oversight loophole that allows that kind of crookery.

Anyway, the remaining balance on the loan, as of today, is $2001.03 and that falls within my red zone.

It was payday today so I’m paying it off in full — using the currently listed “pay off amount” of $2001.35 (an extra 33 cents) and “borrowing” from my savings to cover any potential shortfall before I’m paid again.

BoA_Auto_Loan

Anyone want to be that then this all clears, though I paid within the listed “payoff good through” date window, that I’ll still owe them a dime or so?

History repeating… but, ahhhhhh, it feels good to own all of my cars again…

Too bad I’m on the verge of purchasing another one

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Car LeaseIn the past I’ve gone on and on about how leasing a car is a terrible idea from a financial point of view.

I made the mistake, once, almost 20 years ago now.

I went so far over the mileage limit (auto leases usually put a limitation on the number of miles you can put on the vehicle each year), I had no choice but to purchase the car as the lease was expiring.

In the end, it worked out for me as I probably should have bought the car right from the get-go but didn’t have the funds for that to happen (or the credit history — requiring my dad to co-sign)…which is why I went with the lease option.

Fast forward to today and, well, things have drastically changed.

I have the funds available to purchase pretty much any vehicle I’d like — all the way up to an entry level Lamborghini.

So here I am, in the final days (yes, days), of my most recent auto loan — and I’m looking at my currently daily driver (a 2005 Scion xA) and thinking, hmmmmm, will I get through another winter with this thing?

I’m not certain.

While it hasn’t let me know…yet…it also fails to give me that “reliable transportation” feeling lately. I’m often quite prepared for it to just, you know, die at the next stop light.

Another shortcoming, and really the biggest of them all, is that in 2005 I was a single guy. Now I have a family of five…and a car that can only seat four comfortably.

With that forcing my hand, I need a bigger and more reliable ride…sooner rather than later.

And that brings my back to my finances…

With it still fresh in my mind (from the loan I’m eliminating now) that a roughly $25k loan equates to a $450 payment and my complete disdain to, you know, continue making $450 payments (weekly, no less) seemingly indefinitely AND the fact that, deep in my heart, I know this next vehicle will simply be a stop-gap until I can get the car I’d really like, well, the lease offers out there are really, really, enticing.

New car with a smaller payment than what I’m paying now and…no huge new debt taken on.

Financially, today, for me, that sounds pretty great.

Hang with me here, I’m trying to convince myself that it’s okay to lease…

Now, about those mileage limitations…well, I don’t foresee those being an issue.

See, when I was in my early 20’s, it wasn’t out of the ordinary to, you know, drive to Ohio for lunch or whatever.

In the last decade, I haven’t driven 500 miles for lunch…yet.

Further, I now live less than 2 miles from the places I visit most often (work, elementary school, and daycare) so clocking under the mileage limit shouldn’t be an issue. And…I have two other vehicles that I OWN should I start getting close to making it cost prohibitive.

So, here’s what I’m thinking off of the top of my head right now.

The “new” car has to be reliable. Duh.

It has to fit my entire family and an assortment of hockey equipment comfortably.

And it has to cost me less than the Swagger Wagon has been costing me.

Notice that I did not say it had to look cool. Or fit in the new garage I’ll be having built. Or last a long time.

Stop-gap, remember? Once this thing is gone and my kids are out of their enormous car seats, I can go back and get another Land Rover like I really want.

For now, though, I’m leaning towards the Ford Transit.

A what?

Sure, you’ve never heard of it but, trust me, you’ve seen them. They look like delivery trucks. Plumbers and electricians use them. Florists. Kind of like the modern day version of a panel cargo van — somewhere between a regular old school van and a full blown box truck.

But here’s the thing — you can also get them with windows and seats in the back making them look more like handicapped vans or shuttle buses.

Ford Transit Titanium

Hardly cool — for real, it’s another Swagger Wagon — but way, way, practical.

And amazingly affordable too…

Hmmmmm….

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MolassesThroughout my years in high school running cross country and long distance on the track, the coaches would often say things like “finish strong”.

Not such an easy task when you’ve already gone around the track a dozen times as fast as you could and are on your last legs.

My finishing “kick” could only be described as “slow as molasses in February”.

No joke, my track coach called me that.

Frequently.

ALL FOUR YEARS.

Thankfully my pace for the previous dozen or so laps greatly exceeded nearly all of my competitors so it was pretty rare event that I’d actually “need” to finish strong.

In fact, I can only remember having to actually sprint down the final straightaway once… ever.

I lost, obviously, you know, being slow as molasses in February…

So here I am, fourteen weeks into my aggressive auto loan payment plan and the finishline is in sight.

I’m excited to rid myself of this monthly, err, weekly bill.

But like on the track 20+ years ago, even though I’m nearly done, I’m worn out.

My checking balance has fallen to the point that, well, I probably should be “re-arranging” some payment dates or dipping into my savings so as to not only avoid fees but also maintain my own personal finance standards of pretty much always being a month ahead of myself.

Basically, the extra payments I’ve been making, while painful from day one, are really getting to the point that they’re crippling.

Okay, crippling is too strong of a word.

They’re restrictive, I guess. I treading water, yes, but slowly sinking. Not sure how much longer I’ll last…

But I’m not suspending the payments.

I’m too close.

And based on my past experiences, the moment you start to veer of course and start making excuses, well, you lose.

I might not have the kick I thought I’d have for these last few weeks of payments (in fact, I thought I’d pay it off by August at one point), my fast pace will get me there soon enough.

Just over $3000 to go…

– – – – – – – – –

PIAC Tangent
Usain BoltIt’s funny, the first time a coach yelled that on my final lap, I was thinking, “Huh? Does he want me to flex on the straightaway?”

Seemed like a goofy request considering I’d already lapped the competition…

Finish strong?

Dude, I’m so far ahead, I could start walking and still finish first.

But here’s the thing if you’ve never really watched distance running… The further you go, the more your “form” breaks down. Your shoulders start to rise, you bend your elbows more, your head flops around, and you start taking smaller and shorter steps.

Even marathon runners run like Usain Bolt at the start. Twenty six miles later, only the really elite ones still have that form.

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End in SightJust ten weeks ago, when I embarked on a very aggressive payment plan, I still owed $11099 on the Swagger Wagon loan.

Today, my balance is $5410, putting me just a little beyond the half way point.

I’m ecstatic.

It certainly hasn’t been as cut and dry as I’d originally thought it would be as I’ve run out of money a couple of times and gotten dinged with maintenance fees for dipping below the minimum balance threshold on my checking account.

I’m also a little surprised that I’ve only been able to make a handful of extra payments so far (on top of the already scheduled “extra” payments).

I guess my debt paying skills have grown rusty. Hmph.

But that said, I’m just now coming upon a remaining balance where I can apply my “red zone finances” method of ridding debt.

Now, with the end in sight, I’m sure I’ll be able to “scrounge” up a few bucks here and there to get me to the end point sooner.

Can’t wait to rid myself of the $444.15 monthly payment, freeing that up for use elsewhere in my unwritten budget, and, once again, own all of my cars free and clear again.

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Years ago while paying down my mortgage in a fruitless attempt to eliminate PMI, I posted a graph showing how much of an effect additional payments have when it comes to paying down debt.

Back then, it was just an extra $25 per week and, boy, did it ever make a difference!

Of late, my target has been my $24750 auto loan taken out in April of 2013 and will you look at that slope change since I started up’ing my payment schedule! Wow!

Auto Loan Amortization Chart

Visuals are great motivators, I find.

So the blue part is the amortization schedule, you know, how it’d all go if I made the minimum monthly payment for the duration of the loan.

The green part is what my actual balance is currently — and will be as I extrapolated the data out a few months until the balance is paid in full.

As you can see, for the first year or so, I was just making the minimum monthly payment of $444.15, you know, just getting acclimated to having a car payment after so many years of owning my cars free and clear.

At around the 1-year mark, I started tossing an additional $102.50 each WEEK towards the loan in a effort to speed things up.

Granted, that’s a lot of money to have lying around on a weekly basis but you’d be amazed at what you can make do without — especially when you have it set-up to be taken out automatically.

Honestly, I’m at my best when I’m cash poor. I’ve said it over and over — I’m amazing at paying down debt but horrendous at saving money.

The key for me is to not have any money to spend. Can’t spend what I don’t have. And the reason I don’t have any is because I’m sending most of it towards my debts — on auto-pilot.

Now, within the past month or so, I’ve stepped it up a notch with crazy with $452 payments (WEEKLY!) that essentially line the entire balance to be paid in full this August.

Yep, before the mid-point of the original amortization schedule — even with just paying the minimum payment for the first year!

— — — — —

For the record, I never was able to get Countrywide Home Loans to stop billing me for PMI (Private Mortgage Insurance) even though I was far beyond the threshhold that it should have been dropped (automatically, I might add) even after numerous phone calls and letters.

To solve the problem and rid myself of an expense I no longer should have had to pay, I ended up re-financing with another bank and cut my mortgage bill by nearly 60%.

Their loss.

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In the past, I’ve documented how making WEEKLY payments instead of monthly payments can really drum up some extra motivation when it comes to paying your debts.

Yeah, I know that’s stating the obvious, I mean, of course paying weekly pays debts faster than monthly. Hello?

But it’s more about the mental side of things — and “solving” that side of things can really pad your wallet in the future.

Instead of being saddled with this car loan for what feels like an eternity — I can eliminate it completely in… 20 weeks.

Twenty weeks versus three more years. Yeah, that gets me pumped to get started.

Here’s the week-by-week plan:

Weekly Payment Plan

Okay, so that’s a bit longer than the original 3 month window that I proclaimed I’d wipe it out within but 20 weeks will be my baseline.

I still think I can squeak this one sooner than that with a few more extra payments here or there. My red zone mentality will take it up a notch as I near the finish line.

Now, don’t get me wrong and don’t think I’m just super wealthy or something… The ability to pay $452.50 per WEEK to an autoloan blows my mind too. That’s A LOT of money.

Based on my perceived comprehension of my biweekly paycheck and my monthly expenses — I certainly don’t have an “extra” $452.50 each week to toss around.

Or do I?

See? There’s the catch.

While you may not think you have much “extra” money available to attempt an aggressive pay down like this, chances are — if you follow a rigid plan — you’ll find that you actually do.

Apparently, while I’ve been financially in cloud cuckoo land for the past few years, I’ve probably been blowing the near equivalent of $452.50 per WEEK on incredibly stupid stiff like gummi bears and dirty polyester.

Okay, that’s not entirely true (most of the time) but you get the point.

Even $25 extra per week makes a HUGE difference on something more long term like a mortgage — the key is that you need to do it weekly. WEEKLY! And stick with it.

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When it became apparent that a new car purchase was imminent, my wife and I initiated a bunch of transfers from savings to checking in anticipation of, well, emptying the coffers to make a down payment.

It’s crazy how we can come up with money fast when we need it — I mean, we practically live paycheck-to-paycheck it seems and each subsequent daycare payment drops us even lower but, when push comes to shove, we were able to scramble together nearly $7k in cash in the span of 36 hours.

Weird how that happens.

Anyway, upon inspection of the Land Rover, we were given the dire news that we were already completely aware of — it’s a 4500 pound paperweight with an original sticker price of $50k.

Trade-in value…$1500.

Ouch.

Not what I’d hoped for but what are you going to do, right? It was just a month ago that we finally trimmed our automotive fleet down to 3 vehicles — I wasn’t about to jump back up to four.

Fifteen hundred bucks to take it off of our hands was a deal I was willing to make.

Following that, they asked if we were going to write a check as an additional down payment — as if they didn’t think we’d intended to.

Now, we’ve been in this situation before. The most recent occurance that I can remember was our big interior renovation project. We’d saved up a bunch of money and paid it *all* out at the onset only to find ourselves cash strapped for what seemed like forever.

Sure, it gave us a huge jump on paying for the whole thing but…well, it wasn’t a great idea.

It sucked actually.

Being a lot wiser now, I realized that writing a $7000 check right then and there would only alter my monthly payment by maybe $100.

A hundred bucks is nothing compared to $7k in the bank.

In my eyes, anyway.

My wife and I looked at each other, shrugged, and decided, “Yeah, okay, we’ll toss another $1000 in towards the down payment.”

So I wrote a check for $1000. No rhyme or reason to that sum.

But that’s it — a $1500 trade-in and a $1000 check for the car and the rest went right back into savings.

So, along with a $444/month payment, we still have money to fall back on *and* a new car.

Yeah, while that payment kinda sucks, it’s still a much more comfortable setting than a new car, a $344/month payment, and an empty piggy bank…for months.

Always a better move to use other people’s money — especially when they’re practically giving it away for free…

If only construction loans could be had as easily as auto loans…

Can You Dig It?

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