topic Re: To pay off Harley Davidson loan with savings, or not? in Auto Loans

To pay off Harley Davidson loan with savings, or not?

ggmorning — Wed, 20 Nov 2019 20:25:44 GMT

Hi everyone, looking for a little guidance.

Last year, I impulsively bought a new motorcycle (I know, shame shame.) At the time my credit was (and still is) recovering from a BK7 discharge from July 2017. I ended up with somewhere near an 11% interest rate. It is a simple interest loan through Harley Davidson financial, not the usual compound interest loan. My (not so logical) logic told me at the time, just get the bike, you can refinance it in a few months when you get approved for a better rate. So alas, I bought the shiny brand new bike and rode off into the sunset.

It makes me cringe to say it, but I ended up financing for 72 months at $230 a month with the ~11% rate. It took me a while to understand the simple interest loan, but from what I could figure out, I know in the beginning more of the payment goes towards interest and as I pay down the loan more goes towards principal. They calculate the interest by the day. If any of that is incorrect please feel free to correct me, I'm not the best with this. Also, I believe that this loan from HD is a "consumer financial loan" or high risk loan on my credit report which is showing as a negative, although I don't know how much of a ding it is causing to my score.

So here's my question:

I owe about $9800 on the bike, with about 55 more payments of $230 to go. I also have around $30,000 in savings which I am trying to grow for a future home purchase. Should I just continue with this simple interest/high interest loan? Would it pay off to refinance the bike? I was pre-approved for an auto refinance for around 8% interest, regular compound interest loan. Or should I just take that large chunk out of my savings and be done with the loan completely?

I am trying to weigh out my options with which will be best for my future. I do have money put aside, but I don't know how much this loan is hurting me. I am able to afford the payment every month, but the interest rate is crazy. And I don't know the pros and cons of refinancing (and if there are more cons going from a simple interest loan to a compound interest loan). This is pretty much my only debt on the books, I don't have any credit card balances or other loans.

Thanks for your time!

Re: To pay off Harley Davidson loan with savings, or not?

Girlzilla88 — Wed, 20 Nov 2019 20:33:57 GMT

Depending on how soon you are wanting to get your home if it is next year or in a few months will change my answer BUT if you are looking next year I would pay off your loan and put the money back (if you can do so during that time) if you are looking at buying in the next few months you don't want to refinance or touch your information as it may hurt your chances of your home but you do want to try to have at least 20% down if possible for your home (depending on your state) to get the 'best' monthly payment depending where your scores are. 11% is ehhhh but it's not OMG HORRID....if you do have a vehicle loan though and you are able to remove the bike loan and add back your funds in time I feel like that is the best approach before your home (but be sure not to touch your information for 6 months at least before applying for your mortgage)

Re: To pay off Harley Davidson loan with savings, or not?

ggmorning — Wed, 20 Nov 2019 20:46:11 GMT

Thanks for your response. Something I did not mention, I will be using the VA Home Loan benefit which offers 0% down. Still might want to put some down though, as New York is expensive.

Also, since this is my only loan - could paying it off potentially hurt my score as I will not have any installment loans showing on my credit mix? When I paid off my car earlier this year I saw my score take a small plunge, as I went from having a large percentage of my loans almost paid off.. then the car loan came off the report and I only had my HD loan which shows as 16% paid off (principal).

Re: To pay off Harley Davidson loan with savings, or not?

Girlzilla88 — Wed, 20 Nov 2019 21:52:39 GMT

You want to keep one so if you don't have a vehicle I would keep the Motorcycle (not pay it off) BUT you don't NEED it (yes it will drop your score at first as it will harm your mix/possibly age so I do recommend keeping it open. I would also put small balance on your Bank Card if you have one and report the others to 0 to hit your AZEO as that tends to help as well But even if they offered 0% down if it's the difference in paying 1800 a month vs. 1000 a month then if you can put something down to get that 1k if that makes sense?!