Your car and the interest rate.

I kept my last vehicle for 16 years. Although she was still running smooth, and looked pretty decent for being an “older but paid for vehicle” I decided to trade her in. I wanted newer safety features, bluetooth and well, that new car smell! I shopped around and like Cinderella, found an SUV I liked, and it fit me and my requirements, wants and needs, “just right.”

We bought a NEW car!

That was 3.5 years ago.

Things were good, we didn’t have any credit card debt and got a low interest rate. To keep the monthly car payment “manageable” we spread the loan over 7 years. The idea was that by the time it was paid for it could go to the kiddo as her car, she would be nearing driving age by then.

See? We had a plan. To us we figured we had gone so long without a new vehicle, and had a track record of keeping our vehicles for a lot longer after they were paid for. So it was an easy way to justify the new car, a new car loan and a new car payment!

YAY US!

So, our loan interest rate was under 4% which was pretty much the norm about 4 years ago. Our previous vehicle’s interest rates were closer to 7% so we felt like we were doing great and making financial progress. As we were making monthly payments on the loan, the interest amount was slowly creeping down. But hey, we had this new car to show for it! YAY US!

Now, let’s fast forward to about 3 years later and I’m thinking, “I don’t want to have this car payment anymore.” We had been budgeting pretty hard for over 2 years already, and with that I was seeing the error of our ways. So at the beginning of 2019, we sat down and planned the financial year. We set a goal of paying off the car by the end of 2019, because we hated seeing the wasted money on the interest amount.

When I tallied up exactly how many dollars and cents we had wasted so far, the amount was $3402.44 and we still have another 3 years to go to PIF this loan!


I started thinking about what we could have used that $3402.44 towards. And realized that we would still be paying off this car for 3+ more years. That would mean loosing more money every month to the interest. Sure, it’s been nice having a new car. Sitting in something safer, nicer and more luxurious than my previous vehicle, made me feel good. Seeing the wasted money increase every month did not.

We thought about trading the car in, and finding something less expensive. But the depreciation on a vehicle is ridiculous. We owed more than what we could get for trade, and I know the game. That guy at the dealership who is acting like he’s doing you a favor, is just thinking about his commission check.

We were stuck, and needed to to find a solution.

The solution that looked to be the best case scenario, was to get laser focused on that car loan and just pay it off. The remaining balance on the car was just under 20K. Funny, because that’s actually the price of a good used vehicle. Sure I had the car I wanted, but that cost us a bit of green. We restructured the budget, and tightened up even more. I figured it would take us about 15 months to pay off the loan if we got really serious about our spending and our money.

Getting serious… I mean real serious.

This plan looked doable on paper. The real work was executing the plan. Of course if we got hyper crazy on paying off the loan, we could figure out how to make 15 months into 12 months. Our goal was set and we decided we had 12 months to make it happen.

Q1 is done, and we’re mid Q2. We are on track! This month is the second phase of making our additional payments to the car. Every little bit helps. When we reconcile our budget at the end of the month, we take any left over or additional money and apply that to the car loan. We have had 2 months so far that we were able to put an extra unscheduled $100 towards the loan. My trick is to get creative with the groceries, and plan our spending and family’s additional expenses.

Things pop up. We’ll need additional maintenance on the car, tires and other things. So we plan. Hopefully there won’t be any major surprises. Part of budgeting is to have a little safety net, “bucket of money” for those unexpected surprises that life tends to hurl our way. Having that extra money on the side for emergencies can be tempting. Luckily we are in a position where we got on a budget and learned how to control our spending. But that takes time. You have to get over the initial temptation of knowing the money is there, but can’t be utilized…

The smart thing to do is go into things with a plan.

I’ll do an update later on in the year. Hopefully we will stay on track and make our goal a reality!

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