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Tips for Auto Loan Refinancing, Add Yours

This article was written by in Debt Reduction. 4 comments.

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.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 4 comments… read them below or add one }

avatar 1 Anonymous

Considering becoming a member of Pentagon Federal Credit Union ( non miliatary can join for a small fees – details are on their page ). They have 3.99% loans on used cars for up to 60 months…. and they finance up to NADA Retail. That’s about the best deal I’ve seen around. Easy as pie too, it can all be done online without so much as a single phone call.

You did note that you have good credit ( that’s a requirement to get *any* loans with Penfed – they do not do subprime, period. )

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avatar 2 Anonymous

I would consider credit union in general. You can sometimes rates lower than some competitive banks.

Chartway CU 3.99% (looks like average credit can be around 5-7%)

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avatar 3 Anonymous

I applied to re-finance my used auto loan last year, though the refi rates weren’t that much better than my current rate (6.4% versus 6.9%). Despite having a credit score over 750 I was denied by the lower rate offerers. They sold my name to another company that offered to refinance me at a rate of 11% if I extended my payments. I wasn’t trying to lower my monthly payments, just pay less interest so i obviously turned them down. Luckily, I’ll probably have the car paid off this summer because I’m currently paying about five times the monthly payment to knock it out as quickly as possible.

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avatar 4 Anonymous

Credit union is definitely the way to go. They’re the lowest rate’s I’ve seen around locally, other than new car financing incentives.

I got lucky last year, my CU was doing a promotion to get cash for refinancing auto loans, so I lowered my rate 1% and got $200.

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