Gather Little by Little

Last week, I decided to refinance the loan on our van. Interest rates have dropped so low, that I cannot put it off any longer. Furthermore, our credit score has recovered so well from our 0% APR balance transfer days, that loan companies are offering really incredible rates to customers like me.

I regularly check my credit score on a website called creditkarma.com. The score is not completely accurate – I think the scores are slightly higher than reality – but the site gives a good idea of my relative score and reflects any drastic changes. You can get an approximate credit score for free at CreditKarma, but while on the site, customers have to put up with the marketing of all kinds of financial products – credit cards, loans, insurance, banking, etc. I do not mind the ads too much since I am getting service for free, but I rarely look at them.

The other day, I noticed an advertisement that claimed that it could save me over $1,500 a year on our van loan . . . that got my attention! I clicked through and looked at the various deals that might be possible. I typed in the approximate value and payoff for our vehicle and looked at the results. I received about half a dozen refinance offers with terms ranging from 24 months to 60 and APR’s ranging from 2.5% to 5%. The important thing was that almost all of the installment payments were less that our current monthly amount.

I eventually clicked through to one of the lenders who happened to be a credit union in our area. When I spoke with a loan officer, I was offered the following scenarios:

• 24 months  2.50% APR  $329 per month
• 36 months  3.25% APR  $224 per month
• 48 months  4.25% APR  $175 per month

First off, every single deal is an improvement over what I was offered a year ago. The improvement is due to an increase in our credit score and lower market interest rates across the board. Our current loan is

• 36 months  8.05% APR  $306 per month

So obviously, I was certainly going to refinance. The only question was which deal to take. The first one is quite tempting with an APR of 2.5% and an earlier payoff. I eventually rejected that idea because, at the moment, I am most concerned with our monthly budget, and increasing our payment by $23 is a step in the wrong direction. Furthermore, I can always pay extra each month and obtain the early payoff if we have the cash. The 48 month deal would have lowered our monthly payment by $135. An extra $135 per month in the budget is fantastic to think about, but I am not sure that our van will last for another three years, much less four.

In the end, I chose the middle option. Thirty-six months is the same term that we have now, the 3.25% APR cuts our current rate by more than half and we still save $82 per month (almost a thousand dollars per year). We have been approved for the loan and hope to finalize the paperwork this week. The only thing that remains is to obtain the prorated balance remaining on the “gap” insurance from the original loan.

All in all, I think this was a pretty good deal. Over the past two months, we reduced our housing costs by $147 a month and our transportation costs by $82 per month for a total of $229 . . . just in time for $5 gasoline . . .

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