Our Auto Loan: An Analysis

Last Friday we paid off our last debt, our auto loan. Have there been any regrets for paying it off early? Not at all. In fact, it's been a relief.

After I paid off the loan I logged in to the Chase website to make sure that the account had been closed. On the account summary page, I found many things that were wrong with this (and I assume would be wrong with many other auto loans).

The following screenshot is from our Chase account. I'm going to step you through this summary line by line.

1. Outstanding principal balance: $0.00 (One of two positive items in this list)


2. Amount financed: $18,622.72 (I remember taking an advertisement with us to the dealership, which listed the vehicle for around $14,000 or $15,000, so the other $3000 must have been taxes, licensing and fees)


3. APR: 7.29% (We got a pre-approval for a similar rate at wells Fargo before we went to the dealership to test drive and buy this car. We financed through the dealership, but, as I'll explain below, even 7% is a lot to pay in interest on the amount that we financed)


4. Original term (months): 66 (Five and a half years is a long time to finance a car, many people replace their cars in less than 5 years and roll their existing loan into a new loan. We paid off this car in 35 months)


5. Contract date: 7/14/2006 (We bought the car just less than 3 years ago)


6. Account closed date: 6/21/2009 (The second positive item)


7. Interest paid YTD (year to date): $247.44 (This is $247 that could have gone to something better, such as building up our food storage, or building savings)


8. Total interest paid: $2,980.91 (This is the saddest line on this summary. It cost us almost $3000 in interest. Add the taxes, license and fees ($3000), and that's $6000 that could have been put to better use. Of course, buying another car costs in terms of licensing and taxes, but since I won't go and look for the original paperwork, who knows how much the dealership charged for fees)

In summary, we paid over $21,000 over the last three years for the privilege to drive this car. The car's current private sale value is about $8,500. We lost about $12500 (21000 - 8500) in this deal.

Based on this analysis, will we finance our next car? You can safely bet no.

What are your opinions on auto financing? Leave your comments below.

We're Debt Free!!

We did it. We finally paid off our last debt: our auto loan. Last January, my wife and I had discussed finally paying off the our loan. We sat down and determined that August would be a reasonable timeframe where we could pay it off. As the months went on, we found more money left at the end of the month than we had originally planned. We would set that extra money aside into our savings account, just to make sure that we could cover any budget items that we must have forgotten about. Most of the time, my next paycheck came and we had a little bit more to set aside in the savings account. After attending Dave Ramsey's Live Event in May, we got the extra push we needed to keep $1000 in savings and use the rest to pay down the loan.

On June 5th, we were able to pay the loan down to $1050. The next two weeks were some of the longest weeks that I can remember, for two reasons: 1) we've been waiting for this day for a while, and 2) we got so excited about paying down the loan that we had to make our budget stretch farther than we had anticipated.

This morning I walked into one of the branches of Chase Bank. The first person I saw when I walked in was a banker. I stated that I was there to pay off my auto loan, and for a second it looked like he was trying to remember how to complete a payoff. He took me to his desk, looked up my account, and wrote down the payoff amount. I wrote a check for that amount, and he said that it would take about a week for the payoff letter and the title to be sent to my house. I also got the phone number of a Chase Auto Finance department so that I could call and cancel the automatic payments from our checking account.

I walked out of that bank and it felt like a weight had been lifted from my shoulders. I called my wife and told her the news. When I got home that evening, we celebrated with pizza and roasted marshmallows (no credit cards this time!).

Now our focus is to put away 6 months worth of expenses. We estimate we could live on about $3000 per month. We plan on taking a vacation or two and finishing our emergency fund by next summer.