Refinancing a vehicle, longer term with extra in the kitty, or shorter term and just make scheduled payment?
"It really depends on the answers to two questions: 1) How tight is your budget going to be if you have to make that $530 payment every month?  Obviously, you'd still be better off than you are now, since that's still $30 cheaper. But, if you're living essentially paycheck to paycheck, then the extra flexibility of the $400/month option can make the difference if something unforeseen happens.  2) How disciplined (financially) have you proven you can be? The ""I'll make extra payments every month"" sounds real nice, but many people end up not doing it. I should know, I'm one of them. I'm still paying on my student loans because of it. If you know (by having done it before), that you can make that extra $130 go out each and every month and not talk yourself into using it on all sorts of ""more important needs"", then hey, go for it. Financial flexibility is a great thing, and having that monthly nut (all your minimum living expenses combined) as low as possible contributes greatly to that flexibility.  Update: Another thing to consider Another thing to consider is what they do with your extra payment. Will they apply it to the principal, or will they treat it as a prepayment? If they apply it to principal, it'll be just like if you had that shorter term. Your principal goes down additionally by that extra amount, and the next month, you owe another $400.  On the other hand, if they treat it as a prepayment, then that extra $130 will be applied to the next month's bill. Principal stays the same, and the next month you'll be billed $270.   There are two practical differences for you:  1) With prepayment, you'll pay slightly more interest over that 60 months paying it off. Because it's not amortized into the loan, the principal balance doesn't go down faster while the loan exists. And since interest is calculated on the remaining principal balance, end result is more interest than you otherwise would have paid. That sucks, but:  2) with the prepayment, consider that at the end of year 2, you'd have over 7 months of payments prepaid. So, if some emergency does come up, you don't have to send them any money at all for 7 months. There's that flexibility again. :-)  Honestly, while this is something you should find out about the loan, it's really still a wash. I haven't done the math, but with the interest rate, amount of the loan and time frame, I think the extra interest would be pretty minor." Refinancing a car for anything other than lowering the rate is not a good idea. Keep the same term, or take a shorter one. Remember that unlike real property, a car only loses value.  So when you make your payments on your 84 month (!) loan, those payments are amortized so that the interest is front loaded. The problem is, when your car gets totalled around month 24, insurance will generally only pay what the car is worth, and you'll owe more.
I am currently in the process of purchasing a house. I am only putting 5% down. I see that some are saying that the traditional 20% down is the way to go. I am a first time homebuyer, and unfortunately we no longer live in the world where 20% down is mandatory, which is part of the reason why housing prices are so high. I feel it is more important that you are comfortable with what your monthly payments are as well as being informed on how interest rates can change how much you owe each month. Right now interest rates are pretty low, and it would almost be silly to put 20% down on your home. It might make more sense to put money in different vehicle right now, if you have extra, as the global economy will likely pick up and until it does, interest rates will likely stay low. Just my 2 cents worth.  EDIT: I thought it would not be responsible of me not to mention that you should always have extra's saved for closing costs. They can be pricey, and if you are not informed of what they are, they can creep up on you. "In England, currently and for most of the last fifty years, the standard length of the mortgage term is 25 years. A mortgage can be either a capital-and-interest mortgage, or interest-only. In the former, you pay off part of the original loan each month, plus the interest on the amount borrowed. In the latter, you only pay interest each month, and the original amount borrowed never reduces: you pay premiums on a life insurance policy, additionally, which is designed to pay off the original sum borrowed at the end of the 25 years. No one in England thinks that a 25 year loan has any drawbacks. The main point to appreciate is that the longer the period of the loan, the less you need to pay each month, because you are repaying the original loan - the capital - over a longer period of time. Thus, in principle, a mortgage is easier to repay the longer the term is, because the monthly payment is less. If you have a 12 year mortgage, you must pay back the original amount borrowed in half the time: the capital element in your payment each month is double what it would be if repaid over 25 years - i.e. if repaid over a period twice as long. Only if the borrower is less than 25 years away from retirement is a 25 years mortgage seen as a bad idea, by the lender - because, obviously, the lender relies on the borrower having an income sufficient to keep up the repayments. There are many complicating factors: an interest-only mortgage, where you pay back the original amount borrowed from the maturity proceeds from a life policy, puts you in a situation where the original capital sum never reduces, so you always pay the same each month. But on a straight repayment mortgage, the traditional type, you pay less and less each month as time goes by, for you are reducing the capital outstanding each month, and because that is reducing so is the amount of interest you pay each month (as this is calculated on the outstanding capital amount). There are snags to avoid, if you can. For example, some mortgage contracts impose penalties if the borrower repays more than the due monthly amount, hence in effect the borrower faces a - possibly heavy - financial penalty for early repayment of the loan. But not all mortgages include such a condition. If house prices are on a rising trend, the market value of the property will soon be worth considerably more than the amount owed on the mortgage, especially where the mortgage debt is reducing every month, as each repayment is made; so the bank or other lender will not be worried about lending over a 25 year term, because if it forecloses there should normally be no difficulty in recovering the outstanding amount from the sale proceeds. If the borrower falls behind on the repayments, or house prices fall, he may soon get into difficulties; but this could happen to anyone - it is not a particular problem of a 25 year term. Where a default in repayment occurs, the bank will often suggest lengthening the mortgage term, from 25 years to 30 years, in order to reduce the amount of the monthly repayment, as a means of helping the borrower. So longer terms than 25 years are in fact a positive solution in a case of financial difficulty.  Of course, the longer the term the greater the amount that the borrower will pay in total. But the longer the term, the less he will pay each month - at least on a traditional capital-and-interest mortgage. So it is a question of balancing those two competing factors.  As long as you do not have a mortgage condition that penalises the borrower for paying off the loan more quickly, it can make sense to have as long a term as possible, to begin with, which can be shortened by increasing the monthly repayment as fast as circumstances allow. In England, we used to have tax relief on mortgage payments, and so in times gone by it did make sense to let the mortgage run the full 25 years, in order to get maximum tax relief - the rules were very complex, but it tended to maximise your tax relief by paying over the longest possible period. But today, with no income tax relief given on mortgage payments, that is no longer a consideration in this country. The practical position is, of course, that you can never tell how long it might take you to pay off a mortgage. It is a gamble as to whether your income will rise in future years, and whether your job will last until your mortgage is paid off. You might fall ill, you might be made redundant, you might be demoted. Mortgage interest rates might rise. It is never possible to say that you ""can"" pay off the loan in a short time.  If you hope to do so, the only matters that actually fall within your control are the conditions of the mortgage contract itself. Get a good lawyer. Tell him to watch out for early-redemption penalties. Get a good financial adviser. Tell him to work out what you will need to pay in additional premiums on your life policy if you are considering taking an interest-only mortgage. Try to fix your mortgage rate in the first few years, for as long as possible, so that in your most vulnerable period, with the greatest amount owing, you are insulated against unexpected interest rate fluctuations. Only the initial conditions can be controlled, so it might be prudent to take as long a term as possible, even though a prudent borrower will leave himself room to reduce that term, and a prudent lender will leave room to extend it, in case of unpredictable changes in the financial circumstances. In England, most lenders are, in my experience, reluctant to grant mortgages for less than 25 years. That is simply a policy. Rightly or wrongly, the borrower usually has no choice about the length of the mortgbage term. Hence, in the UK it can be difficult to find a choice of interest rates based on differing mortgage terms. I am aware that the situation in the USA is rather different, but if I personally were faced with the choice I would be uncomfortable about taking on a short term mortgage, because of the factors I have outlined above." A loan that does not begin with at least a 20% deposit and run through a term of no longer than 48 months is the world's way of telling you that you can't afford this vehicle.   Consumer-driven cars are rapidly depreciating assets. Attenuating the loan to 70 months or longer means that payments will likely not keep up with depreciation, thus trapping the buyer in an upside down loan for the entire term. "Here in the UK, the rule of thumb is to keep a lot of equity in your home if you can. I assume here that you have a lot of savings you're considering using. If you only have say 10% of the house price you wouldn't actually have a lot of choice in the matter, the mortgage lender will penalise you heavily for low deposits. The practical minimum is 5%, but for most people a 95% mortgage is just silly (albeit not as silly as the 100% or greater mortgages you could get pre-2008), and you should take serious individual advice before considering it. According to Which, the average in the UK for first-time buyers is 20% (not the best source for that data I confess, but a convenient one). Above 20% is not at all unusual. You'll do an affordability calculation to figure out how much you can borrow, which isn't at all the same as how much you should borrow, but does get you started. Basically you, decide how much a month you can spend on mortgage payments. The calculation will let you put every penny into this if you choose to, but in practice you'll want some discretionary income so don't do that. decide the term of the mortgage. For a young first-time buyer in the UK I think you'd typically take a 25-year term and consider early repayment options rather than committing to a shorter term, but you don't have to. Mortgage lenders will offer shorter terms as long as you can afford the payments. decide how much you're putting into a deposit make subtractions for cost of moving (stamp duty if applicable, fees, removals aka ""people to lug your stuff""). receive back a number which is the house price you can pay under these constraints (and of course a breakdown of what the mortgage principle would be, and the interest rate you'll pay). This step requires access to lender information, since their rates depend on personal details, deposit percentage, phase of the moon, etc. Our mortgage advisor did multiple runs of the calculation for us for different scenarios, since we hadn't made up our minds entirely. Since you have not yet decided how much deposit to make, you can use multiple calculations to see the effect of different deposits you might make, up to a limit of your total savings. Putting up more deposit both increases the amount you can borrow for a given monthly payment (since mortgage rates are lower when the loan is a lower proportion of house value), and of course increases the house price you can afford. So unless you're getting a very high return on your savings, £1 of deposit gets you somewhat more than £1 of house, and the calculation will tell you how much more. Once you've chosen the house you want, the matter is even simpler: do you prefer to put your savings in the house and borrow less and make lower payments, or prefer to put your savings elsewhere and borrow more and make higher payments but perhaps have some additional income from the savings. Assuming you maintain a contingency fund, a lower mortgage is generally considered a good investment in the UK, but you need to check what's right for you and compare it to other investments you could make. The issue is complicated by the fact that residential property prices are rising quite quickly in most areas of the UK, and have been for a long time, meaning that highly-leveraged property investment appears to be a really good idea. This leads to the imprudent, but tempting, conclusion that you should buy the biggest house you can possibly afford and watch its value rises. I do not endorse this advice personally, but it's certainly true that in a sharply rising house market it's easier to get away with buying a bigger house than you need, than it is to get away with it in a flat or falling market. As Stephen says, an offset mortgage is a no-brainer good idea if the rate is the same. Unfortunately in the UK, the rate isn't the same (or anyway, it wasn't a couple of years ago). Offset mortgages are especially good for those who make a lot of savings from income and for any reason don't want to commit all of those savings to a traditional mortgage payment. Good reasons for not wanting to do that include uncertainty about your future income and a desire to have the flexibility to actually spend some of it if you fancy :-)" If there's no prepayment penalty, and if the extra is applied to principal rather than just toward later payments, then paying extra saves you money. Paying more often, by itself, doesn't. Paying early within a single month (ie, paying off the loan at the same average rate) doesn't save enough you be worth considering Indeed - the math. I bought my car 6 years ago. It was an ex showroom model (not demo) so came fully kitted and with a decent discount. I had the cash, but the salesman wanted me to take financing on half of the price *and gave me a discount* so that I would. It was a 3 year loan at a very low rate and was therefore lower than the cash price I had gotten. So I took the deal. I can only assume he was getting better commission rates for financing than he was selling cars. Either way, worked out for me. "Yikes! Not always is this the case... For example, you purchased a new car with an interest rate of 5-6%or even higher... Why pay that much interest throughout the loan. Sometimes trading in the vehicle at a lower rate will get you a lower or sometimes the same payment even with an upgraded (newer/safer technology) design. The trade off? When going from New to New, the car may depreciate faster than what you would save from the interest savings on a new loan. Sometimes the tactics used to get you back to the dealership could be a little harsh, but if you do your research long before you inquire, you may come out on the winning end. Look at what you're paying in interest and consider it a ""re-finance"" of your car but taking advantage of the manufacturer's low apr special to off-set the costs." "Check to see if you can do this at this point. When I was refinancing the mortgage on my last house, I put a sizable ""extra"" chunk down like you're planning to do, but the amount of the loan had already gone through the processing (for lack of a more specific term).  My extra money went toward principal, but my payment was still the same as if I hadn't put any extra down. If you find out that it's too far along in the process, not to worry: extra emergency fund isn't a bad thing to have."