Advice on Closing Student Loan by taking an Auto Refi Loan

Discuss anything related to interest rates & fees, like balance transfer offers, low rate cards, annual fees, etc.
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nvtech
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Advice on Closing Student Loan by taking an Auto Refi Loan

Postby nvtech » Thu Dec 12, 2013 10:22 pm

Guys...Need your suggestion on closing a Student Loan by refinancing my auto loan.

Current Situation:


Student Loan:
-----------------------
$8,500 Student loan Balance. Paying 3.5% interest and Remaining term 8 years.

Monthly Payment is $80

Auto Loan:

Took a new car made a 18k down payment and financed 7.5k for 36 months.

Monthly Payment is $218.


Now, I got approved for an Auto-Refinance for 13.5k for 1.99% APR and 60 months.

Monthly Payment approx $236.
The bank has agreed to send 7.5k to the original Auto loan and the remaining 6k as a personal check.


I am thinking of paying 6k to the Student loan and that way, maybe I would save 1.5% interest rate for now(Never know when the FED's would increase the rates).


I know I would be benefitting something here in saving some interest but I am not exactly sure if I will be losing anything in terms of taxes. Every year, I have been writing off close of $400 as student loan interest at the time of tax filing.

Please post your opinions.

Thanks


daniel2304
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Postby daniel2304 » Thu Dec 12, 2013 10:27 pm

Why would you want to refinance your car loan?
As you said, interest rate on student loan is tax-deductible, why would you not take advantage of it? Why would you want to pay more for car loan than student loan? Currently you pay $218 for car and 80 for student loan, now your car payment is 236, why don't just get $18 to put on student loan payment?
All my posts are my opinions. All my posts mentioned "you" are merely for discussion-purpose only. No advice is given in any post at any time. It is also impossible for me to put effort to verify every statement that anyone has given.

nvtech
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Postby nvtech » Fri Dec 13, 2013 12:19 am

Why would you want to refinance your car loan?


The current auto loan is 36 months with $218/month for a total amount of 7.5k.
The refinanced loan is for 60 months with $236/month for a total of 13.5k.

As you said, interest rate on student loan is tax-deductible, why would you not take advantage of it?

So far I took it. The $400 tax deduction is not really making any huge tax difference. I am trying to know if someone can point me towards funding an IRA in smaller amounts...


Why would you want to pay more for car loan than student loan?

My auto loan rates is 1.99% fixed but the student loan 3.5% is variable. Since the Fed kept the rates @ 0%, its 3.5%.
The moment the rates start coming up, student loan rates may go up.

Currently you pay $218 for car and 80 for student loan, now your car payment is 236, why don't just get $18 to put on student loan payment?

I currently pay $80/month for Student loan and $218/month for Car loan totaling $298/month.

If I do the refinance for 60 months @ 1.99%, I can keep the monthly payment @ $236.

Instead I thought the other way, If I payback 6k to the student loan principle, I would pay $236+$80 = $316
As you said, its only $18 more that what I am paying today.

Just trying to know which is good for the long term.

daniel2304
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Postby daniel2304 » Fri Dec 13, 2013 12:37 am

I take it back all my words. After doing some math, I think this is a smart move. At first, it seems the car loan will add a little more interest (around $312), but paying down student loan with higher interest will help. Overall, you can shorten the student loan's life too because the remaining amount of $2,500 will be easier to pay together with the car loan.
All my posts are my opinions. All my posts mentioned "you" are merely for discussion-purpose only. No advice is given in any post at any time. It is also impossible for me to put effort to verify every statement that anyone has given.

samhradh
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Postby samhradh » Fri Dec 13, 2013 12:54 am

What's good for the long term? Keep the loans you have now as they are.
Citi Forward ($10.1K), AmEx Blue Cash Everyday ($30K), Chase Freedom ($12.4K), Discover it ($5.5K), Barclaycard Arrival ($12.5K), L.L. Bean Visa ($5K). FICO 806 (TU), 812 (EQ), 806 (EX).

daniel2304
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Postby daniel2304 » Fri Dec 13, 2013 1:17 am

I updated my post.

I take it back all my words. After doing some math, I think this is a smart move. At first, it seems the car loan will add a little more interest (around $312), but paying down student loan with higher interest will help. Overall, you can shorten the student loan's life too because the remaining amount of $2,500 will be easier to pay together with the car loan.

It seems that the economy is going better and sure the interest rate on student loan will be changed. Overall, $8,500 balance with 3.5 interest rate in 8 years will end up around $1,200 in interest (at this moment only, never know how much if the interest rate goes up). With $2500 remaining on your student loan, and keep paying $80/month, your student loan will be charged off in 32 months.

So your new car loan will be half-way at that time. As some calculator I used on bankrate.com, your balance on car loan will be around $5,500. Keep paying extra $80/month by that will help too
All my posts are my opinions. All my posts mentioned "you" are merely for discussion-purpose only. No advice is given in any post at any time. It is also impossible for me to put effort to verify every statement that anyone has given.

nvtech
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Postby nvtech » Mon Dec 16, 2013 2:56 am

Thanks Guys.

I took 6k from the auto loan @ 1.99% for 60 months and paid it off to the Student Loan.

daniel2304
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Postby daniel2304 » Wed Mar 05, 2014 7:24 pm

May I ask at what score you can get the interest rate at 1.99? Is it possible to take out the car loan by a check and then buying a cheaper car and use the different amount to do something else like you did on the original car loan?
All my posts are my opinions. All my posts mentioned "you" are merely for discussion-purpose only. No advice is given in any post at any time. It is also impossible for me to put effort to verify every statement that anyone has given.

JoDa
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Postby JoDa » Wed Mar 05, 2014 8:11 pm

This just got bumped, but I agree with your overall decision for 2 reasons:

First and foremost, the extra interest was costing you almost as much as refiing saved you. Sure, you could "write off" $400/year, but that only amounts to a savings of your taxes. If you're in the 25% tax bracket, that's $100/year. Teeny-tiny potates. Refiing $6K at 1.99% versus 3.5% saved you ~$90 in your first year of interest. If you are below the 25% tax bracket, you made out like a bandit on interest alone (if you're, say, 15% marginal max, then you SAVED $30/first year). I won't postulate if you're above 25% marginal tax, because then you wouldn't qualify to write it off (income caps, yo).

Second, that $6K is now dischargeable in bankruptcy should the proverbial excrement hit the rotating air moving device. Sure, if you're permanently and totally disabled, or suffer something equally bad, you MAY (MAY) be able to get out of your student loans after spending thousands in attorney fees you don't have if you're declaring BK, but don't count on it. Car loans? Gone in a second if you find yourself in dire straights.

Good choice. Now, drive that car into the ground. Keeping and fixing an older one is usually cheaper than buying a new one. I recommend you learn how to do basic maintenance yourself. Even just changing your own air filters and windshield wipers will save you $$. I always paid to have my oil changed when I had a car because I didn't want to deal with the mess, but other basic stuff I did myself. For the oil changes, I found a garage that had a half-price special every Saturday and went there...
CSP $19K
BOA $4K
UMP $11.5K
Target Visa $1.5K

nvtech
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Postby nvtech » Thu Mar 06, 2014 6:00 pm

daniel2304 wrote:May I ask at what score you can get the interest rate at 1.99? Is it possible to take out the car loan by a check and then buying a cheaper car and use the different amount to do something else like you did on the original car loan?


I got the loan with my credit union SFCU and 1.99 is currently being offered by most credit unions.

With regarding the Score..I going anything over 720 is considered good and eligible.

And regarding your last question, it would be really nice to get a car loan at higher amount and then use part of it for self but practically its something tough I guess.

A car loan is a loan with Collateral as Car. So most of the times, a loan can be given only to the value of the car. And always, you need to turn in the Title with in 60 days.
If you don't turn in the title in 60 days, you would a last 30 days notice and you still don't send your title, the car loan would be converted to a higher interest APR loan.

My situation was little different. I did a car re-finance and my actual loan was about 7k.
My car value is over 25k and hence I was able to secure a loan for 13.5k.

And hence I paid off my primary loan of 7k and the remainder as a personal check.



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