Citi

Called today to cancel a credit card I had forgotten about.

By the end of the conversation, I had transferred my 8.15% car loan to a 4.99% credit card loan. By my schedule, I have saved close to 2k.

The downside of going for an unsecured cc loan vs a secured auto loan?

 

Make sure you pay as much as you were, plus the compounded interest. Car loans and CCs are calculated differently, I think.

 

You want to check to see if the interest is variable. If it is, the rate could go up. Also, as token hinted, most credit cards use compound interest where as you car loan was probably simple interest.

 

Better pay it down like you were hopefully doing before. Yes, your car is no longer securing the CC but the interest and late fees will eat you alive if you don't make the payments. Key is to keep making the same payment and hopefully you don't put a ton of other stuff on the card.

 

It isn't variable. I do know that.

Actually I plan to pay a little more each month than I was, just to get it paid off sooner.

 

Sounds like a great idea.

 

Have you ever felt like you knew there was something important that you weren't remembering?

If you are ever faced with this situation, keep in mind that any gap insurance that you might have taken out doesn't transfer. It might not make a difference in your situation, but I'm not sure I would have made the change if I had remembered it.

 

Never even heard of gap insurance before but thanks for the info.

 

VA, it's sorta a gimmicky insurance and not needed if you don't get into car loans. For example, if your car is worth 5K and your loan is 10K, then gap insurance covers that 5K if it is totaled.

The problem I have with all this sorta gimmicky insurance is that statistically, it isn't used and it is often expensive in cost/dollar. I know statistically it isn't used because well these companies make tons of money on them and push them hard. I also majored in Statistics and we studied these things and the probability of them being used is very low and the vast majority of the premiums paid is for profit/commission and not sat aside to cover losses (ie you could save the money and self-insure it). The other problem is that it is decreasing insurance. In other words, the car's value deceleration will slow down and the later payments will go more heavy to principal so the gap will narrow but your premium doesn't narrow. In the above example, you are paying a premium to cover a 5K gap but then a year later, you are paying the same premium to cover a 2500 gap. It gets really expensive on a cost/dollar basis then.

Same thing with extended warranties BTW. Some studies have shown that 80% of the consumer cost with extended warranties goes to commission/profit. And, I know from my own work that the probability of them being used is low. Trust me, they know exactly how many are going to fail within 2/3/4/5 years of any product. I'll give an example, my parents recently had to replace their Fridge. They bought it five years ago in July and the compressor died October this year. The 5 year warranty ran out in July this year. That isn't just bad luck. It's just statistically known that a very high percentage will last for 5 years and then start dying at higher percentages after that. That is why they didn't sell them a 20 year warranty on their Fridge. Just something to think about

 

Thanks.