car refinancing

mightyjongyo

Or, alternatively: I make bad car decisions all the time.

I have a car with a pretty high monthly payment ($420). I was thinking about refinancing the loan so that I could have lower payments, because i could use more money every month. I have 15k left on it (out of 24k-ish at the start). Is this a good idea? Or should I just deal with it? Mostly considering this so that I can pay student loans and move out of my parents' house as well.

What I've read so far is that if I have decent credit, then it will help me lower my payments, and that there is little additional cost. Then again, that info is from bank websites, so...probably not exactly truthful. If this is a good idea, are there any loopholes or gotchas that I should be aware of?

a5ehren

I wasn't aware that anyone would re-fi a car loan. Unless your interest rate is really bad, I don't think the loan term will be long enough to pay off the upfront fees of the re-fi.

darqness

It's worth looking into if you got a bad rate. My credit union has offered me 2.5% refinancing in the past with no up front fees. However if you have a good interest rate and are just wanting to extend the terms of the loan then DON'T DO IT. Unless you're in bad financial shape then I strongly urge you to not lengthen your contract just so you can move out of your parents house. Ultimately you could end up upside down on it.

mightyjongyo

I don't think my rate is that bad - IIRC it's 4.7%, and I am ahead on payments, so I'll be done with it in 3 years or so.

I'm not in that bad financial shape, so I guess I'll just stick it out. Thanks for the help guys.

Irredeemably Indecisive

How much is the car currently worth? If it's below what you still owe, there is no chance at a refinance, but if it's higher the chance of refinancing goes up.

Also, if you're ahead of the loan, can you drop the monthly payment for a little while to bring the monthly payment amount down. Also make sure your loan doesn't have anything negative about an early payoff, I hate seeing people get screwed by being on top of their finances like that. I made sure my current car loan had a clause that said there was no penalty to paying the loan off early

mightyjongyo

It's probably worth what I have left to pay on it.

True, I can do the math and pay less each month and still pay it off in time, which I did not think of. Thanks!

re: early payoff penalty: Woah, that's a thing that can happen? Why would there be a penalty for paying off early? I'm guessing it has something to do with the lack of accumulated interest?

Dr. Frenchenstein

if you are 3 payments ahead, that does not give you the ability to skip or lower a payment before the end of your loan, i don't believe. If that's what's being suggested. When you do that, the loan just ends up paid off sooner, and you save a bunch on interest in the end. You still need to pay at least the minimum payment amount each month. Is your payment really like $350, and you simply choose to pay $420? if the minimum payment is $420, that's what you have to pay each month, no matter what how far "ahead" you are.

Yeah, banks essentially lose all that interest revenue when you pay off early, so some of them throw in the early out penalty to recoup some of it. it's often the high interest predatory loans that do it i think. basically, that high interest loan is the only way people are getting the money to buy that car, so why not completely wreck their shit. YAY BANKS.

Irredeemably Indecisive

Dr. Frenchenstein wrote: »

if you are 3 payments ahead, that does not give you the ability to skip or lower a payment before the end of your loan, i don't believe. If that's what's being suggested. When you do that, the loan just ends up paid off sooner, and you save a bunch on interest in the end. You still need to pay at least the minimum payment amount each month. Is your payment really like $350, and you simply choose to pay $420? if the minimum payment is $420, that's what you have to pay each month, no matter what how far "ahead" you are.

On my car loan, if I'm a whole month ahead I can skip a month without any penalty. It basically takes any payment above my minimum and forwards that to the next month. My current next payment due date is in 2013.

Bowen

Yeah same here, if I pay ahead I can skip until the payment holds my loan for.

see317

I've seen it go both ways on overpaying for loans. One of my loans would count any overage towards my future payments so at the end of the year I could skip a payment if neccesary, the other just applied it directly to the principal, lessening the amount of interest I was being hit with and shortening the duration of the loan (since with less interest accruing, more of my monthly payment was going to repaying the principal, thus further lessening the amount of interest that was accruing).

All things considered, I greatly prefer the second method.

saltiness

My bank gives me the option when I pay to make additional payments toward future monthly payments or toward principal.

mightyjongyo

I've been paying roughly double (anywhere between 600 and 800, original is 420) for about a year now, so I'm a fair amount ahead. My statements are telling me that nothing's due. From the statement:

When making early loan payments or payments greater than your "Regular Payment Amount", your principal is reduced and a credit shows toward your next month's payment. By continuing to make payments in excess of your "Regular Payment Amount", you effectively reduce your final payment or shorten the term of your loan.

So I guess I could technically quit paying for a few months (not that I will, but it's helpful to figure this stuff out regardless).

My car loan is through the auto maker's financial institution (Honda), if anyone has any knowledge about whether they do the early payoff penalty. But man it is still hard to believe that this is a thing that happens to people.

Irredeemably Indecisive

The wording seems to say it's just taking months off the loan, not that you wont have a regular payment due next month. I'd call your loan's customer service and get that answer from them directly before you decide to *possibly* short the bank for a month