I currently have a car loan and am paying 16.3% interest on it. I was only 18 when I bought the car. My car payment is about 0 per month. I’m now 21 and still have about ,000 left on the loan. I found a company that will refinance it at a 9% interest rate and my payments would come down to about 5 per month. It would be another 4 year loan, but this would give me the opportunity to pay off the loan sooner as I would be able to pay extra towards the principle. I am so not good at figuring these things out. Does this sound like a good idea?
It sounds like you only have another year to pay on your 16.3% loan. You really didn’t provide that very valuable piece of information.
If that’s the truth, you’d be crazy to refinance for another 4 years. The thing is that you’ve paid off most of the interest due on the loan you now have. Auto loans are front loaded, so for the first 2 or so years you are paying mostly interest and hardly any toward the loan itself. If you have only 1 year left to pay on that loan, you’re only paying a very small percent of interest for the last year and most of that $240/month payment is going toward paying off the loan itself.
When you refinance for another 4 years a 9%, you are paying off what you owe on the car (which you would be paying off in about a year under the old loan) plus interest on that amount amortized over the next 4 years. You’ll pay about a thousand dollars in interest under the NEW loan so you’ll end up paying back $7,000 on a $6,000 loan. If you remain on your current plan, you’ll pay back $6,000 on a $6,000 loan, saving you a thousand bucks That leaves about 17% more money in your pocket at the end of the day.
Everyone thinks they will pay additional principal or double up payments, but the reason lenders LOVE to refinance at lower rates is that it’s a fact that most never do that. Other things come up all the time and you’ll never end up paying it off early (or not early enough to offset all the interest they front load in to the loan).
all i can say is nothing is free .read the small print
the refinance will cost you 8400 total over the next 4 years; 175 per month for 48 months.
you will probably save money overall if you keep the current loan. this new loan does not really reduce your payment very much. also, you will save bucks on the insurance once you get clear title to the vehicle; some of what you are paying now is just to make sure the loan is covered if the car is totalled. a waste of bucks, really.