29 May 2013

Hump Day Herald: Car's Paid Off Early!

Upon arriving home a few days ago, a found a nice hand-addressed thick envelope from my car loan company. With a small sense of giddy expectation, I opened it. As expected, it contained the "pink slip" (aka title) for my car. As far as they're concerned, my car is now paid off! Payoff is more than a year early, but it couldn't have come a moment too soon.

However, as much I would like to be done with it, I do still owe the money. My payoff was done by way of a "0% interest" for 12 months balance transfer offer from one of my credit cards. After debating it for a bit, I decided to do it for three reasons: lower interest, unsecuring debt, and lower insurance.

California car title
The pink.

Lower interest

Stuffed inside the envelope were the original loan documents detailing all the terms and conditions. Some things about that day are still fuzzy, but I don't recall seeing the actual loan terms at the dealership. I was only told that I'd have a payment of $206 for 35 months. The actual terms were apparently printed on after my signing because I would've definitely balked and walked had I seen that my interest rate would be 24% (okay technically 23.99%).

But c'est la vie, no use continuing to dwell on it. While my new interest rate is substantially lower, it isn't quite the 0% they claimed it would be. Being the slick group that they are, they charged a "balance transfer fee" of $50 or 3% of total, whichever was greater. Now we all know that it costs the same amount to process the transaction, whether it be for $50 or $50,000,000. It's a major profit machine for companies. As it turns out, it's just the lesser of the two evils at the moment.

Although I plan to pay it off before the 12 months is up, holding the balance beyond that time will subject it to my regular purchase interest rate. Still, until that time, it's saving me a good 2% of the balance a month, which is about $45. That's money that I will now apply to other higher interest situations to continue to lower my debt load.

"Unsecuring" debt

By transferring my balance to a credit card, I have also made it into unsecured debt. With a car loan, the loan company holds the title until you pay them off. As evidenced by the picture on the right, the loan company has granted me quittance and I now hold the title. Therefore, missing a couple payments (not that I plan to) would ding my credit score a bit, but won't bring out a repo (wo)man to try and grab my car at the most inopportune time.

Lower insurance

One other area of money drain that exists due to having a car loan is via insurance. Most lien holders require you the buyer to have comprehensive insurance to cover the cost of repair or replacement should the car get stolen, flooded, burned, crashed, etc. You have no choice in the matter. Paying off the loan gives me options: do I want to keep comprehensive or just go with liability? It's a decision I will make in the next couple weeks since it's up for semiannual renewal in June anyway.

Share your story

What about you? Have you been able to pay off debt recently? Similar experience buying a car? Did you change your insurance coverage or provider? Leave you interesting or creative responses in the comment section below.

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