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The auto loan is for 60 mo @ 14.9%. The total cost of the current loan is $ 41,000. I have paid on the loan for 15 months now and have been receiving refinance rates @ 7.9% for 60 months. This would add another year to the life of the loan.
I have no problems paying the current loan amount and plan in Aug to begin paying an additional $ 250 a month on the principal. There is no penalty on my current loan for paying off early and there is no balloon payment at the end.
I want to do what is best for my credit rating, I am in the process of repairing after a wicked divorce. Currently at a 684, goal is to get it above 750 to help with future goals for business and personal financial decisions.

5 Thoughts on Which is best to pay the principal on a loan or refinance? Seeking best answer for overall loan payment?
  1. Reply
    August 11, 2011 at 7:51 am

    Is there a prepayment penalty on the 7.9 offer? 14.9 is highway robbery!! Are you pre-approved for the 7.9, or is it just a flier in your mailbox?

    And . . .if they’ll give you 7.9 over 60 months, would they give you 7.5 over 48? And you should keep paying the same amount you were paying before – ie, overpaying, to pay the loan off faster.

    But if it were me, I’d sell the $ 40,000 car and buy a $ 10,000 used Saturn, and have it paid off in a year.

  2. Reply
    Hot Pants
    August 11, 2011 at 8:12 am

    What you need to do is figure out how much interest you would pay in total with each sceniro and see which would save you the most money in the end.
    IF you are looking to repair credit, it would help to refinance it. It would show the first loan as being satisifed and paid in full, plus you were able to qualify for the second loan. It would increase your credit score.

  3. Reply
    August 11, 2011 at 8:37 am

    Adding another year to the loan is also adding extra cash to interest payments even if the payment is lower. Stick with your plan on adding $ 250/mo towards the principal. You’ll win in the long run.

  4. Reply
    August 11, 2011 at 8:38 am

    Do both! Re-fi AND pay additional principal each month. The re-fi will extend the POTENTIAL life of the loan but since you’re planning on paying extra you’ll actually pay it off sooner than just paying extra on the higher rate loan since less of the payments will go towards interest!

    This will give you the side benefit of a lower required payment for any given month if funds should get tight.

    If you have made it though a nasty divorce with a 684 FICO score, you’re actually slightly above average and right on the border for prime paper. It sounds like you’ve got your ducks lined up in a nice straight line, so march ’em on down the road!

  5. Reply
    August 11, 2011 at 9:21 am

    It look like you’re payment is around $ 1200, right? With about $ 500 going to interest every month! If you take 40 months to pay it off (including the 15 you’ve already put in). That’s money down the hole – nearly $ 20,000 worth!!! Get rid of the payment and get something with no payment. Do you really want to be paying that much for a 6 year old car at the end of the re-fi loan?

    Sell the vehicle and take anything you make (after paying off the loan), and buy a used car with NO PAYMENT. Then you can take the payment (and the $ 250) and save for your next car. You’ll buy that using your old car as a trade and the cash you’ve saved up (should be around $ 17,000 saved plus your trade). Again, newer car, no payment. Keep saving the money and you can trade up again in another year. You’ll have a nearly new (NEVER buy new cars) car with NO PAYMENTS!!!!

    PS – I’m nearly debt-free (no credit cards, no loans except mortgage) and my score is 795 – just checked today.

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