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May 3, 2019
By: Jean Chatzky, Author , SavvyMoney
This is a quick and painless way to shave dollars off your monthly bill and hundreds of dollars off your total interest paid. Plus, the entire process is easy and takes less than an hour.
Ever thought about refinancing your car loan to capture today’s interest rates? It can be done, even though it’s not all that common. And, unlike refinancing a mortgage on a home, the process is easy, only takes a few hours, and usually costs less than $100. Your only out-of-pocket cost is the title transfer.
So, if it’s that simple, why aren’t more people doing it? One reason is that the difference in your monthly payments once you refinance isn’t nearly as significant as it would be with a home mortgage, since the amount borrowed is less, and car loans are shorter-term loans. But even so, with interest rates on used cars hovering around 5%, an auto refinance might be worth your looking into, particularly if you’ve seen a significant improvement in your credit score since you took out your original loan, or if you didn’t shop around for the best rate on financing the first time.
Still unsure if it’s right for you? Let’s look at an example. If you took out a five-year, $20,000 loan two years ago at an interest rate of 12%, your monthly payment would have been $445. If you were to refinance the remaining amount – about $13,400 – into a three-year loan now, a 2% reduction in interest would drop your payment by about $13 a month. That means you’d save a little more than $400 over the life of the loan, and while that’s certainly enough for the refinancing to pay for itself, that amount might not be enough to get you excited. Let’s say you could decrease your interest rate to today’s current 36-month used car average of 5.34%. That would put you saving closer to $40, or $1,440 over the remainder of the loan — some serious cash.
If that got your wheels turning, here’s how you do the deal:
Posted May 3, 2019 by Jean Chatzky