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.