Refinance Your Car Loan If…

When we think of saving money often the first thing that comes to mind is to refinance a mortgage. But, don’t forget many of us have another loan that can commonly be refinanced—the auto loan. The first time I heard about refinancing a car loan I scratched my head and wondered why I’d never thought of that before. But refinancing a car loan doesn’t always make sense. There are specific situations when doing so could help you out. Here are some to consider:

1. Lower Rates. If rates have gone down more than a couple of points lower than your current loan. But be sure you are looking at used-car rates, since the car you are driving is now technically used. At some lenders used-car rates can be higher. Note that is not the case at your credit union—same rate for new or used.

2. Has your credit score improved? If you’ve been responsible with your credit and improved your score, you might qualify for a better rate.

3. Or, things have gotten worse. If the economy has been hard on you and you need to cut some expenditures refinancing the car could help.

Coors Credit Union offers a vehicle refinance program that could make sense for you.

origami car by Corigami

Should You Refinance Your Car Loan?

The following was originally posted October 2, 2008 , updated 10/23/09.

Cutting out little luxuries like a morning latte or dinner at a restaurant only goes so far to reduce expenses. To really make an impact you've got to look at your current expenses with a new perspective. Like you car payments. When was the last time you looked at your payment? Have you ever even considered that you might be able to lower those payments? Chances are good that an autoloan refinance could give you some relief each month. But don’t just look at your monthly payment before deciding to refinance.

Refinancing for longer terms could end up costing even more over the life of the loan. Say for example you’ve got a $15,000 auto loan at 12% written for 60 months. Your current payment is $360 each month. The total amount you’ll pay when the loan is finished is $21,622. You’ve just completed the 2nd year of payments, so you’ve already paid 24 payments or $8,640. Your remaining balance is $12,982.

You refinance the loan at a lower rate of 8%. This time you’re refinancing the remaining balance of $12,982. If you choose another 60 month loan your monthly payment would be just $263.22—nearly a $100 savings in your monthly budget. That would definitely relieve the strain. But over the life of this loan you’d pay $15,793. Add that to the $8,640 you’ve already paid and you’ve spent $24,433 on a $15,000 car.

But what would happen if you were to refinance at the same 8% rate and shorten the terms to 48 months? You’re payment would be slightly lower than the original loan at $317. And at the end of the refinanced loan you would have paid $15,216. So again you’d be paying almost $3,000 more than the original loan.

Refinance at shorter terms—say another 3 years and you’re payments are higher than what you are currently paying--$407, but your total cost only goes down to $14,645. Add on the $8,640 you paid previously and you’ve spent $23,285.

So what you need to decide is which is more important. Paying less overall or reducing your monthly payment and paying a bit more in total? Does that $3,000 matter to you? Maybe you’d be better off investing that money? But then again, it’s not like you’ve got that cash lying around. If you do you shouldn’t be considering this scenario at all. Remember, the name of the game is to reduce debt.

How to Reduce Your Car Payments

Remember my post from last week in which I reduced our monthly utility bill? I hope that you concluded that really none of your fixed monthly bills are hard set. Really we should all take a look at all expenses when looking for a reduction.

How about your car payments? Have you looked at your interest rate lately? Do you even remember what it was? Loan rates are low right now and you might just be able to refinance your car loan.

Most of us don't often associate refi's with car loans. It's an action that's more associated with mortgages. But, it is possible to lower your car payments.

First, take a look at your current loan. Interest rates are now less than 5.5% annual percentage rate. If you are currently paying more there is a good chance that you could do better.

And, if your credit score has improved since you first financed your car, it may help you qualify for a better rate.

These days every little bit saved can help you out in a big way. Check out this link regarding the Coors Credit Union auto loan refinance program.

Could you cut your bills by refinancing your auto loan?

With prices in the stratosphere, cutting out little luxuries like a morning latte or dinner at a restaurant only goes so far, especially if you own an SUV or family minivan. Maybe you could refinance your auto loan? It certainly could give you some relief each month. But don’t just look at your monthly payment before deciding to refinance.

Refinancing for longer terms could end up costing even more over the life of the loan. Say for example you’ve got a $15,000 auto loan at 12% written for 60 months. Your current payment is $360 each month. The total amount you’ll pay when the loan is finished is $21,622. You’ve just completed the 2nd year of payments, so you’ve already paid 24 payments or $8,640. Your remaining balance is $12,982.

You refinance the loan at a lower rate of 8%. This time you’re refinancing the remaining balance of $12,982. If you choose another 60 month loan your monthly payment would be just $263.22—nearly a $100 savings in your monthly budget. That would definitely relieve the strain. But over the life of this loan you’d pay $15,793. Add that to the $8,640 you’ve already paid and you’ve spent $24,433 on a $15,000 car.

But what would happen if you were to refinance at the same 8% rate and shorten the terms to 48 months? You’re payment would be slightly lower than the original loan at $317. And at the end of the refinanced loan you would have paid $15,216. So again you’d be paying almost $3,000 more than the original loan.

Refinance at shorter terms—say another 3 years and you’re payments are higher than what you are currently paying--$407, but your total cost only goes down to $14,645. Add on the $8,640 you paid previously and you’ve spent $23,285.

So what you need to decide is which is more important. Paying less overall or reducing your monthly payment and paying a bit more in total? Does that $3,000 matter to you? Maybe you’d be better off investing that money? But then again, it’s not like you’ve got that cash lying around. If you do you shouldn’t be considering this scenario at all. Remember, the name of the game is to reduce debt.