Help on Auto Loan vs. Student loan/Mortgage

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sighchological
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Help on Auto Loan vs. Student loan/Mortgage

Post by sighchological »

Hello all,

Just want to see if my financial decision making is rational. Any help would be appreciated :)

Some financial facts:

- I have a $175K mortgage at 4% fixed
- I have a $53K student loan at 6.55%

My combined salary w/ my wife is $155K.

I am planning to purchase a lease buyout for a 2010 Honda Accord. The Honda has around 35K miles and is in good condition. The value according to Blue Book is around $12.5K and the cost to purchase the Honda is around $12.2K.

I have around $14K in savings now so I could purchase the Honda if I wanted to. However, would it make sense for me to purchase an used auto loan, for example, through Penn Fed? They have a used auto loan for 2.49% / 60 month. https://www.penfed.org/used-auto-loan/

My logic is that since I can use the money from the 2.49% auto loan to pay part of the student loan?

Any suggestions? Has anyone ever used Penn Fed for an used auto loan?

Thanks in advance!
Last edited by sighchological on Sat Apr 12, 2014 6:35 pm, edited 1 time in total.
Twins Fan
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by Twins Fan »

The money from the auto loan, about 12.5k, could PAY OFF your higher interest loans?? I think your math is off. :D

I'm having trouble following what you plan to do here. Do you mean you would do the lease buy out with cash and then refinance or take a loan out on the car with PenFed using that money to pay down the student loan by 12.5k?

Personally, taking out loans to pay down loans some just doesn't make sense. Refinancing a mortgage or an auto loan,... sure. But, taking out little loans to pay down parts of bigger loan... more debt/leverage than I want in my files. I would pay off the car with cash, no longer have any lease or loan payment there, and throw that old payment money at the student loan. The 6.55% there is pretty high... for me anyway. Your mortgage isn't that bad at 4%.

My take on it anyway...
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sighchological
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by sighchological »

Twins fan,

Sorry, I know I cannot pay off my student loans, i mean pay (part) of them off :)

I mean I would get a $12K used auto loan at 2.49% for 60 mths from PenFed.

Pen Fed would write me a check for $12K and I would use that $12K check to pay off my student loans.

Did I make a mistake in assuming that they will write me a check if I get the used auto loan?
NorCalDad
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by NorCalDad »

Yes, this arbitrage strategy often gets recommended on this board. My only concern would be whether you have an emergency fund beyond the $14,000.
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by Twins Fan »

I knew what you mean, sigh. Just couldn't pass it up. :happy

Yes, they will cut you a check or deposit the money in your account, and you can do it that way.

It seem you want to save some interest paid here. Can't blame you there. But, what's the plan if you do it this way? Do you plan to stay on schedule, just pay the minimums, and ride out the loans? Or, are you going to start attacking the student loan to pay it off ASAP? If you're just going to ride out the loans, then paying a lower interest rate on about 1/4 of the student loan will save you some. But, if the student loan is tax deductible.... then how much? If you plan do start attacking the student loan, then I would just start getting after it with the least amount of monthly payments possible. Total interest saved might not be all that much playing the loan game, if you knock out the loan(s) in a couple years.

This is just me, and I'm a debt averse type. Some will say play the loan game even if it saves you $20. I wouldn't do it and wouldn't give it a second thought.
campy2010
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by campy2010 »

If you need to purchase the car, then I would definitely finance the car with the PenFed loan. Keep your cash for an emergency. If you have an established emergency fund then use your cash to pay down your student loans.
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JonnyDVM
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by JonnyDVM »

Refinance your student loan. Personally I will never again borrow money to buy a car but if you want to go that route most here swear by Penfed. Also $155k is a lot of cheddar, I would be working my hardest to pay that student loan back in a couple years. Those loans are a hinderance to life and are best disposed of as soon as possible.
I’d trade it all for a little more | -C Montgomery Burns
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sighchological
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by sighchological »

Thanks for everything guys! it definitely gave me a lot to think about.
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sighchological
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Re: Help on Auto Loan vs. Student loan/Mortgage

Post by sighchological »

Twins fan:

I was planning on just paying min on the lower rate auto loans until the loan ended and use the saved interest to pay off the higher interest student loans... thanks for the advice :)
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