By Diane Lochner
You researched, you negotiated, you bought – and now you've got a sweet ride that motors you around town. Yep, your car’s in great shape… but how's that loan treating you? Is a high monthly car payment stretching your budget? Terrified that you’ll end up missing payments and end up with your car repossessed? If your financial situation has changed unexpectedly, what might have seemed like a do-able payment at first could be harder now.
Lowering your APR by a percentage point or two can save a lot of money.
You might want to look at refinancing your car loan to a lower annual percentage rate (APR). If you bought your car with 0% or other low APR financing from the dealer, chances are your loan term is a short one. Or maybe your original car loan came with a high APR – and today you’ve got a better credit rating or current rates are lower. Just lowering your loan's annual percentage rate (APR) by a percentage point or two can wind up saving you a lot of money – in your monthly payment and in interest.
refi is better than repo
Let’s say you bought a $20,000 car a year ago, with a five-year-car loan at 10%. Your monthly payment is about $425. If you work with your credit union to re-finance your car at 7.5%, on a four-year term, your monthly payment drops to about $405. That’s a savings of about $20 a moth, and almost $1,000 less in interest over the life of the loan.
What if you’d bought that same car using the 0% financing the dealer offered? Zero percent sounds awesome – but not if you have to pay it off in two years! In this case, your car payment would be a huge $833 each month! I don’t know about you, but that’s more than I pay for rent.