Occasionally, Consumerism Commentary readers email me with financial questions. If you want to see a topic discussed here, you can do this as well. Just email me at flexo or tips at this domain name. I can’t answer every email personally, but I’ll do my best to connect you with the resources you need.
Last week, I received this question from Justin about auto loan refinancing:
I’m interested in refinancing my car loan. I was younger and dumber when I bought my car, so I didn’t pay much attention to the financing side of it. I am currently in a 11.96%, 72-month loan, and I’ve knocked off about 2 years so far. I have good credit so I know I could get a better loan. Do you at least have some tips for me as to where to start looking?
With good credit, you should definitely be able to find a better deal, saving you hundreds if not thousands of dollars over the course of the loan. My first inclination is to check BankRate for a comparison of rates for auto refinance loans. Interestingly, the only loan available through BankRate for my location was a 36-month loan through a lender called “up2drive” for 6.90%. I am not convinced that BankRate is providing me with a full picture of what might be available.
I would start with the local banks with whom I already have a relationship. For me, this would consist of Wachovia and TD Bank, but if you are a member or could become a member of a credit union, they often can provide deals you may not find from a traditional bank.
If you’re interested in comparing refinance options to determine how much you might save through the course of the loan, take a look at this calculator. It is designed for home mortgages but the calculation is the same for auto loans.
When you do refinance, unless you choose a shorter period than your original loan, you’ll be extending the total number of payments you’ll make, although those payments will be smaller. I would suggest, if possible, to pay more than your monthly amount if the terms of your new loan don’t penalize you for doing so. To make the most of the money you spend on cars,, pay off the loan as soon as possible and keep the car as long as possible. Don’t feel that you need to buy a new (or new-to-you) car once you stop sending monthly payments to the bank.
I have never refinanced an auto loan. I’ve had loans on two cars at different times, both Honda Civics. The first I sold when I no longer needed a car for work, and used the proceeds to pay off the loan. The second was financed outside of the banking system at a low rate at 2%. This was a loan with a family member, a situation that led me to go outside a strict debt avalanche system and pay off the debt as soon as possible.
I would welcome additional comments and suggestions from readers who have experience with auto loan refinancing or who have thoughts to share on the topic.
Photo credit: tomsaint11
Updated February 6, 2012 and originally published February 9, 2009.