|
 Dear
Terry,
I have a 2004 Toyota Highlander that I bought
new. I have made the payments for the past three
years, and still owe $15,500 over the next three
years. It has only 30,000 miles on it, so
it is worth $3,000 to $4,000 more than what I
still owe. The payment is $480 a month and that
does leave things very tight at the end of the
month -- more than we would like.
I drive about 10,000 miles a year;
I live within five to 10 miles of everywhere I
need to drive to. We make about $70,000 combined
per year; my house payment is $600 a month.
Does it make sense to sell the
car to buy a smaller used car, for around $16,000
or so, that still fits our family and financing
it for five years to have a cheaper payment (but
maybe not as nice a car)? Or should we consider
refinancing our car for five years to lower the
payment (add two more years, for a total of eight
years of payments)? Or should we consider
ourselves lucky to have a nice SUV, and muscle
through the next three years of payments, and
then try to drive it longer to have zero payment?
Please help. I don't know what would get us more ahead.
-- Lauri
 Dear
Lauri,
Strictly in terms of what will get you "more
ahead,'' sticking with the original loan is still
the way to go. If your driving needs continue
as you describe, you'll have a paid-for vehicle
with about 60,000 miles that should continue to
give you good service for at least another 30,000
miles, if not more.
If the size of the payments is
keeping you awake at night, then perhaps you may
want to consider selling the SUV and buying a
late-model sedan. Assuming you can clear $3,000
from selling the Highlander and use that as a
down payment on your hypothetical $16,000 used
car, your payments for a typical five-year loan
would be about $255. If you shortened the term
to four years -- which would mean you'd be in
debt only a year longer than your current loan
-- the payment would be about $309, considerably
less than you're paying now.
The one thing you shouldn't do is refinance your current vehicle and stretch out the payments over a longer period. Not only will that result in higher interest costs, but you'll still be making payments at a time when you may want to consider a new vehicle.
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