When I got my car a couple years back, my credit was atrocious. I had to buy something, though, because my old car would have required 1k to get running. It was a shitty 16-year-old beater and the brakes went out on me, along with lots of other non-cosmetic problems that would probably crop up over the next year anyway (it idled funny, the odometer worked sometimes, etc). Instead of bailing out the sinking ship, I channeled that 1k into a down payment on a very nice, reliable 2006 Ford Five Hundred sedan.
I do love my car; it’s probably the best money I’ve ever spent. But of course, as my credit was atrocious at the time, I’m paying way more than it’s worth in interest (something like a 20-25% interest rate–yes, I’m stupid, bygones, hindsight, 20/20, slap me about with a bit of trout if it makes you feel better). I just heard about the possibility of auto refinancing, though… I thought was more of a house thing. But if it can lower my car payments, that would be nice. My credit is more stable now and I’m in “repayment” on every single one of my debts, although I’m not sure if my actual numerical score is higher, since I never paid to have that monitored.
TL;DR How does this whole car refinancing thing work?
Refinancing is merely a math trick. It’s just taking out a new loan to pay off the old loan. There’s nothing special about it. Thus, you can refinance anything, even jewelry, provided someone out there is willing to give you a loan.
There are a few things you need to consider, though:
It usually involves an origination fee. That’s a fee you pay just to take out the loan. It’s usually 2%-5% of the loan amount.
It pushes the date of final payoff into the future. So if you’ve only got, say, 20 months of payment left on your current loan and the new loan is 5 years, then you’ll be paying the cheaper price for an extra 40 months!
So keeping that in mind, if you crunch the numbers, you’ll see at exactly what month your new, lower price has saved you enough to compensate for the upfront costs and extra payments. Luckily, you don’t have to do that yourself- your loan provider (the bank, credit union, w/e) will usually do that for you and give you a break-even date.
It may, but doesn’t have to. When I re-fi’d my house, I went from a 30 year mortgage (~25 years remaining) to a 15 year mortgage, and still lowered my payment about $7/month. So I ended up paying off the house 10 years sooner.
I also re-fi’d a couple of vehicle loans to be home equity loans so I could write off the interest. I think I basically kept the origional payoff dates the same in those cases. (give or take 6 mos.) but It was too many years ago for me to be sure.
Thanks everyone! Especially for those links, Omar.
I scrubbed some capital one credit card debt within the last couple of years. If there’s such a thing as a creditor blacklist, I’m sure I would be on theirs. But I will check out BoA for sure
Yep - can definitely do this. My first new car (a 1982 Dodge Omni… a huge improvement over my bought-from-friends-of-parents Fiat, which tells you how bad that Fiat was) had dealer-arranged financing at something like 18%. A year later I refinanced it at something like 14%.
My current car was financed at 5% through the credit union. About 2 years back, they kept flashing up “new or used car loans at 4%” every time I logged in, so I refinanced it. The shortest term they offered was 3 years - which actually would have pushed it out 6 months beyond the original payoff date… but I kept making my current payment, so actually shortened the life of the loan. Just made the final payment last week :).
I definitely wouldn’t take out another loan of the same length as the original - try for one that has roughly the same end date as the original loan would have. Otherwise, you would quite possibly pay more in total than your original loan.
Bear in mind, the loan would be treated as a used-car loan, so the terms etc. might not be as generous as if you were financing a new car through the same institution. Still, it might be a considerable cost savings.
Where do you see car loans that have an origination fee? Admittedly, every car loan we’ve had for the last 20+ years has been through the credit union, but even before that I didn’t have such a thing when financing through a traditional bank. Is this something new? I know Lending Club charges them, but those are unsecured loans in an unusual marketplace.
