Re-financing auto loan?

[Mr. Longhorn]

Is this worth doing? I have no idea if auto % rates are falling like homes are. Has anyone done this? What are they likely to charge for this?

 

[midtown]

Unless you are getting a massive drop in your interest rate and in the first year of your loan its probably not going to workout.

 

[gardere_owns_OU]

mr. longhorn, i did and recommend everyone do the same. i got a lower interest and shorter term by going to united heritage credit union. saved thousands and thousands and lowered my monthly payments.

second time i've done it (two different vehicles) and both times i saved a lot of money.

best of luck.

 

[midtown]

I'd love to hear the details on your two loans and how much money you saved. If you look at your amortization schedule and how much interest you have already paid its highly unlikely that you will save anything.

 

[chango]

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[midtown]

It's absolutely relevant because most of your interest is paid up front. If you look at the TOTAL interest paid already and add the amount of interest you'll pay in your new loan I think you'll see that its more than you would've paid if you had simply stayed in your current loan. As I mentioned unless you go from say a 7% loan down to 2% and do it in the first year.

 

[chango]

midtown, Lets assume there are no fees to refinance the auto loan. What he has paid to date is gone, not going to change. What he will pay from this date forward until the car is paid off is the only thing that can change. So again, if the payment is lower and the term is shorter he's saving money no matter how much interest he's already paid. You can't be recommending that he keeps the higher payment and longer term because he's already paid a lot of interest anyway? Bernard, want to chime in??

 

[Luke Duke]

This makes no sense at all.

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[MilkmanDan]

Running the numbers:

500/month for 60 months is an original principal of $25,251.

After two years, you've paid $2,942.24 in interest. If you went to term, you'd pay another $1806 over the remaining three years.

Refinancing the remaining $16,193.23 principal for 36 months at 4%, you now have monthly payments of $478.09 and pay $1,017.96 in interest.

So the difference is roughly $22/month more in your pocket and $800 saved in interest.

Going from 7% to 5% is $15/month and $527 less in interest.

 

[TexasEd]

Just compare total future payments.

If you can refinance and pay out less under the new loan than the remainder of payments on the old loan you should do it.

There may be cases when you monthly payment actually goes up because you have a shorter term but the total payout is still less.

For example:

Currently paying $400/ month with 48 months left = 19,200

Refinance to pay $425/month for 36 months = 15,300

Total future payments is the only thing you need to look at.

 

[MilkmanDan]

Put more simply, you have to pay off the same principal after two years compounded at whatever your interest rate is. If you refinance at a lower rate for the same amount of time, you're going to save money.

 

[MilkmanDan]

Sorry, chango, I realized I just repeated what you'd said.

 

[HornBud]

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[sawbonz]

I thought auto loans were simple interest, not amortized, no?