Hi jjryan,
Wow, you really got hosed on the interest rate. One reason may be that you are younger and don't have much credit history and your FICO scores are too low. So they get you on the rates... You can try and refi or seek help building/rebuildilng your credit history....remember to always pay on time. Late payments will trash your credit scores very quickly. If you have a credit card, use it to buy necessities but pay off the full balance each month on time and your credit will improve quickly. See if you can get a free credit report online and if your scores are 650 or higher, you should be able to get a decent refi rate thru your local bank or credit union or even AAA.

Hope this helps,
Good luck.

Ralph

 

Thanks guys. Yeah I had 6.25 on my trade in. I was at 575 when I bought this car I remember seeing on the paperwork. I'll build some more credit and try to refinance in summer. FYI loan now is through Toyota.

 

I guess it depends on your interest rate and your payment term. My $19,900 HCH technically cost $26k when one factors the interest over a 5-year loan.

 

Unfortunately what Gonavy said is correct. A refinance may not be possible, depending on the terms of the original loan. Some loans specify that all interest is payable first with no discount for early payment. In fact some even have an early payment penalty.

Of course these types of loans should be avoided at all costs (then again so should loans at 10% these days anyway). Most normal loans from reputable banks can be paid early to save on interest.

The best way to save money on car loans is to pay cash if you can. Oh sorry, that was crazy talk.

 

yeh, same here jjryan. After finance charges & TTL, my car should be about 34k with a ~8.5% interest rate. I'm also 23 so i'm getting screwed because of my age.

 

I use this loan calculator to help calculate the benefit of making payments early. (not mine--from Microsoft)

I paid $300 extra last month and I plan to pay an additional $1000 next month, which cuts 6 months off of my payments--I'm looking forward to it!

--
Hillary

 

I'm also 23, and I was offered 4.85% by Suntrust and my Credit Union guarantees 4.99% (my Prius was used). I don't think being 23 keeps you from getting a good rate.

--
Hillary

 

Right. Loaners are not quite like insurers- your rate is not directly dependent on your age. However, generally many 23 year olds do not have much credit history, which can keep you from getting the BEST rate (depends on loaner), but will normally put you in the AVERAGE rate category. You are an unknown to the loaner. Unfortunately, just a couple late rent payments or phone bills from when you were 19 or 20 (or younger), or a bad purchase decision back then will disproportionately affect your credit score since you don't have much other history to balance it.

Go to www.annualcreditreport.com and get your (by law) annual free report to see what's on your record. You don't get your score here, but you'll see what's there- a good chance there are at least a couple errors. Correct those, and things may improve next time.

If you think $42K is bad, wait till you get a mortgage and see the total payment sum after 30 years!!!

 

IMHO, cash is always good for small purchases, but unfortunately when you make a big cash payout for a car with today's dollars, you are paying the "inflation" penalty. Sometimes you're better off paying a low interest loan because as the years go on, you are actually paying less each year. Inflation is always going up and your dollar is worth less (at least 4% less each year). 99.9% of us will always need a car and will have monthly payments so unless you're independently wealthy, I would have to say that cash is not a good alternative.

 

I disagree. I would rather gain my 4% interest from leaving the money in my savings than have to pay 5.99% to the bank. Plus, with the interest factored in, you pay a much higher total price by making payments.

No, you don't have to be independently wealthy to pay cash for a car. A Toyota is built to last. You can have 8 plus years and 200,000 plus miles. I know I did with my previous car, a 1995 Tercel that I sold to my sister and still going strong.

Here is what you do:
1) You probably already have a car payment, so keep paying it.
2) When you have finished paying off the car, don't stop making the payment. All you do is stick the same monthly amount away in a good savings account.
3) Resist the temptation to buy a new car until your old one has truly outlived its usefulness. So, if you had a five-year loan but kept the car eight years, you have 3 years worth of payments saved up.
4) When it is time to buy a car, use your savings for the down-payment. Since you have been collecting instead of paying interest, you will actually have more than the sum of your monthly contributions to work with. But, maybe this won't fully buy a new car so you still have to take a loan.
5) Pay the new loan, probably a 3-year this time because you paid over half the value of the car. If the monthly payment is still lower than your old loan, keep putting the difference in savings. Then once you have this loan paid off you have 3 years of partial payments to savings plus another 5 years of full payments.
6) Another several years go by and you need a new car again. This time, it is highly likely that you have enough saved to pay cash.