Originally, when I bought the 2012 Volkswagen GTI certified. I knew immediately that I wanted to pay it off early. Upon purchasing the car the interest rate was 4.49% which I thought was great for a new grad who had no credit and no money on hand to pay towards the car at the time of purchase. Sounds great so far, right? Well actually I signed up for six years of payments!
Yep, y'all heard me! SIX YEARS!
I highly recommend to clients and anyone that will listen not to do this! Car loans over 3 years just aren't worth the added interest that you are expected to pay. Cons to paying for a car longer than 36 months,
✖️Car value decreases drastically over the years especially after 3
✖️More money because more interest
✖️Why do you want to owe someone anything for longer than 3 years?
So let's recap, do not sign up for an auto loan that is greater than 3 years. However, if you create a sinking fund like car fund then you could save the money to buy the car debt free.
Need a car now but no money saved 👉🏾 3 year auto loan
Want a car in the future 👉🏾 create a car sinking fund
Not sure how to create a sinking fund? Don't worry I got you sis, read my earlier blog posts Tips to Starting a Sinking Fund.
So money and car value were my biggest drives in getting this car paid off early. Just shy of three years in I decided to refinance the auto loan. I moved the loan over to my credit union (highly recommend credit unions) and got a 1.99% interest rate for 3 years. I know, I know. "Y'all like Kalai, why would you sign up for 3 more years??? You just told us to not pay for a car more than 3 years?". Well I knew that I needed to get the car paid off and I want to save interest! In the end the car was paid off in 1.5 years and through refinancing and paying it off earlier than planned we saved over $1,000.
After paying off the 2012 Volkswagen GTI, the husband and I decided to payoff his 2011 Volkswagen Tiguan. Thankfully, when we got his car we had more experience and sense. We went through our credit union and got a 2.29% for 3 years. We paid off his car in 2 years and saved over $400 in interest.
Wonna read some tips on how to find a car for a steal? Check out my blog posts Tough Decisions were I talk about car mileage, negotiation, and new car vs used car vs certified car.
Unfortunately for our budget but fortunately for my grandmother, we sold 2012 Volkswagen GTI to my father (for a deal) who gifted the car to my grandmother since it was time for her to upgrade from her 2002. We replaced my car with a 2018 Audi Q3. In a future blog posts, I will talk about this purchase, the battle the husband and I faced when making this decision, and my overall experience.
Let me know what your biggest #moneymove is in the comments.