You may recall that, a little over 2 years ago, I bought a car. I had gotten a new job that I was going to need to drive to (no direct public transportation route). So, between asking around, reading my consumer reports, and doing a few test drives, I decided on my car.
But how was I going to pay for said car? I didn’t really have enough in savings. Well, maybe I did, but then my savings would be completely depleted, and I wasn’t too keen on that. So I tried to figure out where my loan could come from. This was back in 2008, when people were still buying cars. In fact, I’m pretty sure it was at the boom where everyone was looking for a fuel-efficient car, due to the ridiculously high gas prices. So, unless I was going to buy a Hummer or some other gas guzzler, I wasn’t going to get a cushy 0% financing through the dealer. In fact, when I asked them about their financing, they actually couldn’t compete with the rate that I was pre-approved for. I had gotten my loan from a local credit union through AAA. It wasn’t the best deal, but 4.49% was as good as I was going to get. Yes, I could have bought a used car. Yes, I could have looked harder for a better loan, tried harder for a better deal, or used up my savings instead. But I didn’t. I wanted a new car because I knew it would get good gas mileage, be safer, and I was going to drive it for as long as possible. And yes, car loans are cheaper now, and I have enough money now, but I was in a bind at the time.
I hated having a car loan. I wanted to get rid of it. It was my highest interest rate loan (since my student loan rates kept dropping), and I wanted it gone. But I was a bit uncomfortable getting rid of all that debt without having a good amount of money in savings. So I made a deal with myself: I’d save up for two years of expenses, then I’d pay off my car loan. Mathematically, that doesn’t make the most sense: the interest I earn on savings isn’t as high as what I’m paying on my loan. Psychologically, though, it makes perfect sense for me. Still, I set a goal in my mint account to get my savings to the magical 2 years expenses goal, and waited.
So, October 2nd, I transferred money from my ING savings to my ING checking, and then had ING checking mail out a check. The check went out October 4th. A few days later, I logged into the credit union account, and my loan account was GONE! And that’s it. I PAID OFF MY CAR LOAN!
Doing all the calculations, it turns out paying 3 years early saved me only $753.52 in interest. I was informed when I signed the loan that financing for 5 years would cost me $2109.70 in interest. This also means I ended up “wasting” $1356.18 in interest. I feel a little silly about that. But what’s done is done. Lesson learned. Moral of the story: Don’t take out a loan if you don’t have to. And my hope and plan is to never take out a loan for a car ever again.
Still, paying off my loan feels absolutely awesome. I’m really excited about my personal finance plans. Watch out, student loans, you’re next!