Should You Refinance Your Car Loan?

The following was originally posted October 2, 2008 , updated 10/23/09.

Cutting out little luxuries like a morning latte or dinner at a restaurant only goes so far to reduce expenses. To really make an impact you've got to look at your current expenses with a new perspective. Like you car payments. When was the last time you looked at your payment? Have you ever even considered that you might be able to lower those payments? Chances are good that an autoloan refinance could give you some relief each month. But don’t just look at your monthly payment before deciding to refinance.

Refinancing for longer terms could end up costing even more over the life of the loan. Say for example you’ve got a $15,000 auto loan at 12% written for 60 months. Your current payment is $360 each month. The total amount you’ll pay when the loan is finished is $21,622. You’ve just completed the 2nd year of payments, so you’ve already paid 24 payments or $8,640. Your remaining balance is $12,982.

You refinance the loan at a lower rate of 8%. This time you’re refinancing the remaining balance of $12,982. If you choose another 60 month loan your monthly payment would be just $263.22—nearly a $100 savings in your monthly budget. That would definitely relieve the strain. But over the life of this loan you’d pay $15,793. Add that to the $8,640 you’ve already paid and you’ve spent $24,433 on a $15,000 car.

But what would happen if you were to refinance at the same 8% rate and shorten the terms to 48 months? You’re payment would be slightly lower than the original loan at $317. And at the end of the refinanced loan you would have paid $15,216. So again you’d be paying almost $3,000 more than the original loan.

Refinance at shorter terms—say another 3 years and you’re payments are higher than what you are currently paying--$407, but your total cost only goes down to $14,645. Add on the $8,640 you paid previously and you’ve spent $23,285.

So what you need to decide is which is more important. Paying less overall or reducing your monthly payment and paying a bit more in total? Does that $3,000 matter to you? Maybe you’d be better off investing that money? But then again, it’s not like you’ve got that cash lying around. If you do you shouldn’t be considering this scenario at all. Remember, the name of the game is to reduce debt.

Recycle technology items for free on America Recycles Day

I have an old computer that's been sitting in our basement for about 2-3 years. Partly because we forget about it, partly because we always think we resurrect it and partly because it's such a pain to get rid of. In the past we've gotten rid of them by donating, but not many places will take old computers anymore. Our recycling center takes them for a small fee, but I'm cheap and lazy and always believe that we could make better use out of the old beast. Honestly, though, no one in our household is savvy enough to make it useful again.

So imagine my excitement when I learned about Staples participation in America Recycles Day. Staples is offering to take old desktop computers, laptops, monitors, printers and fax machines this Saturday (11/15) for America Recycles Day. To sweeten the deal for each item you recycle the store will also give you a $30 off coupon to use in their store or online.

Staples is also running their Mountains of Technology program which donates $5 per recycled item to local high schools. The only stores participating in the Mountains of Technology are Littleton and Boulder. They'll divide their donations between three high schools in each area.

So don't forget America Recycles Day-Saturday, Nov. 15. Even if you don't have an old computer to take to Staples you can step up your recycling efforts.

Could you cut your bills by refinancing your auto loan?

With prices in the stratosphere, cutting out little luxuries like a morning latte or dinner at a restaurant only goes so far, especially if you own an SUV or family minivan. Maybe you could refinance your auto loan? It certainly could give you some relief each month. But don’t just look at your monthly payment before deciding to refinance.

Refinancing for longer terms could end up costing even more over the life of the loan. Say for example you’ve got a $15,000 auto loan at 12% written for 60 months. Your current payment is $360 each month. The total amount you’ll pay when the loan is finished is $21,622. You’ve just completed the 2nd year of payments, so you’ve already paid 24 payments or $8,640. Your remaining balance is $12,982.

You refinance the loan at a lower rate of 8%. This time you’re refinancing the remaining balance of $12,982. If you choose another 60 month loan your monthly payment would be just $263.22—nearly a $100 savings in your monthly budget. That would definitely relieve the strain. But over the life of this loan you’d pay $15,793. Add that to the $8,640 you’ve already paid and you’ve spent $24,433 on a $15,000 car.

But what would happen if you were to refinance at the same 8% rate and shorten the terms to 48 months? You’re payment would be slightly lower than the original loan at $317. And at the end of the refinanced loan you would have paid $15,216. So again you’d be paying almost $3,000 more than the original loan.

Refinance at shorter terms—say another 3 years and you’re payments are higher than what you are currently paying--$407, but your total cost only goes down to $14,645. Add on the $8,640 you paid previously and you’ve spent $23,285.

So what you need to decide is which is more important. Paying less overall or reducing your monthly payment and paying a bit more in total? Does that $3,000 matter to you? Maybe you’d be better off investing that money? But then again, it’s not like you’ve got that cash lying around. If you do you shouldn’t be considering this scenario at all. Remember, the name of the game is to reduce debt.

Justification Saves the Day

The other day my daughter who for the record is plenty old enough (but I'm not saying how old) to drink coffee asked me to take her to Starbucks. She needed a venti hazelnut frappacino with with whipped cream. I offered to make her my drip fair trade coffee with hazelnut syrup, but that didn't go over well.

"It's not the same," she said with a roll of her eyes. "I need a frappacino."

So then for the I don't know one-millionth time I explained to her that we were trying to save money and cut down on unnecessary expenses and her "need" for a frappacino was actually just a want and she wasn't going to die without it.

"So if we're cutting down on spending why did you and Dad buy a grill?" she grilled.

I proceeded to explain that Dad and I didn't just frivolously go out and purchase a grill. Our old grill became a safety hazard. Really, last summer I burnt my eyelashes and set my hair on fire--literally just like in the cartoons. It wasn't serious, but the grill was euthanized.

So anyway, we didn't go overboard with this purchase. We didn't get some miniaturized gourmet kitchen to put outside, but we also didn't get a tiny hibachi. We opted for a low-cost small basic grill with an additional side-burner (I like that feature).

"Well, dear (or something like that) Dad and I spent $87 on that grill, but the grill will last a least a few years and should pay for itself. Now here's where the justification comes in. The temperature outside is 90 degrees in the sun, which at 4:00 in the afternoon beats down on our kitchen raising the internal temperature to 79. The thermometer for the air conditioner is next to the kitchen. When we heat the oven it increases the temperature of the kitchen to above 80 which in turn causes the thermometer to rise which turns on the air conditioner. The oven might run as long as one hour, but it will take much longer for the kitchen temperature to go down. Because hot air rises and your bedroom is directly above the kitchen it heats your room. Then you can't sleep well. Now if we close the blinds to keep the sun out of the kitchen we will help keep the temperature down. But we'll probably turn on the lights, further adding to our energy consumption and our bill. And so if it cost $0.03467 per kilowatt hour and the oven uses..."

This is she said, "fine" (Do you know what "fine" really means in teen vernacular? Hint: it's another word that starts with the letter F.) and she left the room. Whew!

Had a been prepared I would have had the math all worked out ahead of time. If you're curious take a look at your energy bill or get it from Xcel Energy's website. Another source to learn how much energy stuff uses is Ask Mr. Electricity.