Refinancing my Auto Loan: Should I or shouldn't I?

Discussion in 'Archived Threads 2001-2004' started by Michael D. Bunting, Jul 7, 2002.

  1. Michael D. Bunting

    Michael D. Bunting Screenwriter

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    Hello

    I'm currently in Kuwait, doing a 90 day deployment for the US Air Force - so I don't have alot of time to research this subject, unfortunately. So, I thought I might post my pridicament here, and see what kind of responses I get before making a final decision.

    I purchased a 2001 Nissan Pathfinder on Jan 6, 2001. Love the truck! No problems whatsoever!

    I put down a pretty big chunk of cash for the down payment ($12,000+)...and finacnced the remainder ($20,000 exactly) via my bank (USAA) for 5 years (60 months) with an APR of 8.75%...this made my payments out to be $413.56

    I am now 1 1/2 years into making these monthly payments with no problems whatsoever.

    Just recently, I received an email from my bank saying that I was pre-approved for a new car loan up to $35,000...or a loan allowing me to refinance my current loan at a much lower APR.

    The rates would now be:

    6.50% for 48 months
    or
    6.25% for 60 months

    So, what do I do? I really don't mind making the current payments at the 8.75% APR...and I have 3 1/2 years (42 months) remaining on this current loan.

    Should I refinance and go for the 6.50% for 48 months (adding 6 months more of payments) but lowering my APR by 2.25% ?

    I really don't like adding additional months to the loan period....Sure, my payments would drop a little (not sure quite how much though?)...as I would like to get this vehicle paid off ASAP.

    But would I be actually paying less for the vehicle in the long run by refinancing now?

    Thanks for any/all the help and or pointers you can give me. I have just 4 more days to decide to accept the loan or decline it.

    Best Regards!
     
  2. AjayM

    AjayM Screenwriter

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    Well without all the information it's kind of hard to give more firm numbers. And I assume both are standard simple interest loans. But here goes.

    With your current loan, if you see it out till the end you will have paid about and around $4800 of interest. Since you've already paid 1.5yrs on the loan, you still have to pay about $3000 of interest. Your average interest paid per month is going to be close to $80 or so.

    Since I don't know the payoff on your car, or more specifically the amount to be refinanced I have to kind of guestimate the figures.
    I figure you'll refinance around $15k for 4 years at 6.5%.
    Should save you around $30-40/month give or take.
    Interest paid over the 4 years will be around $2100.
    Average interest paid per month would be around $45 or so.

    So basically you will save yourself almost $1k of interest charges.

    The extra couple months of payments may be a kicker here, but making a couple of extra payments, or keep paying the same $412 you pay now on the new loan will kill the loan down faster than even 42 months, essentially that $30-40 extra a month you saved will go straight to principle, basically making an extra payment per year.

    Hope this helps to make a decision a little easier.

    Andrew
     
  3. Tim Kilbride

    Tim Kilbride Stunt Coordinator

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    Micheal,
    You don't have to take the refinance loan for the stated period if you opt not to...you can make the refinance term as long as you like. With this in mind...you can continue to make the same payments and shorten the length of time you have to pay dramatically or you can lengthen the term of the loan and pay less per month. Either way you will save considerable in interest...

    Bottom line...go for the refinance...but remember, YOU are the customer here...YOU dictate to the bank how you want to handle this!!!

    My .02,
    Tim K.
     
  4. Tim Abbott

    Tim Abbott Second Unit

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    I'll echo most of what Andrew said. It is a no-brainer to refinance at the 6.5% (lower interest rate, less money you have to pay for your car). The only decision is whether you decide to make the lower payment after you refinance, or continue to pay the $412 a month and pay your car off earlier than 48 months.

    *I am assuming that the refinance is of no cost to you. If this is the case, you should refinance. Once you decide to do that, you can take some time to figure out the best payment plan for your situation.

    Does this help any.....?
     
  5. Michael D. Bunting

    Michael D. Bunting Screenwriter

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    Thanks alot for the help guys...I figured I should go ahead and refinance...but I wanted to throw this post out there and get some feedback first.

    Both are indeed simple interest loans.

    The remaining amount of the loan is indeed just over $15,000...sorry for leaving this tidbit of info out of my original post.

    Also: My understanding is that the refinacing is at no extra charge to me. I'll be sure to double-check though when I call my bank here in a couple hours to discuss refinancing with a loan consultant.

    If I can refinance for say, 36 months...I may try to go that route also. I am not sure that they offer shorter than 48 month terms though.

    Thanks so much again everyone.... I'll post my findings with the bank a little later if I can.

    God Bless!~ & Thnaks again!
     
  6. MikeAlletto

    MikeAlletto Cinematographer

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    Why do banks offer to refinance loans? What is in it for them? If they don't charge you anything why do they do it? I never did understand why they offer it.
     
  7. Chris Lock

    Chris Lock Second Unit

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    > Why do banks offer to refinance loans? What is in it for them?

    They'd rather keep you as a customer at a lower interest rate than have you go get that rate from someone else.
     
  8. Tim Kilbride

    Tim Kilbride Stunt Coordinator

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    Mike,
    Don't forget to check whether there is an early payoff penalty. Most simple interest loans do not have this, but hey, I've seen it done (to guarantee the bank gets all of it's interest).

    Tim K>
     
  9. Michael D. Bunting

    Michael D. Bunting Screenwriter

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    Good call Tim....Thanks...I will ask them this also....I called already once tonight and got some more info....and the payment terms:

    I'll probably go with refinancing for 3 years with an APR 6.25% (with automatic checking account deduction payments), the payments will actually increase about $53.00 from what I'm paying now...but I will save on the interest and I'll have less months to pay overall tan what I have now also.

    I will be calling back tomorrow to finalize the refinancing...and will ask about the early payoff penalty at that time.

    Thanks again
     
  10. Denward

    Denward Supporting Actor

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    Here's the formula for calculating a payment amount for almost all loans (home mortgage P&I, car loans, personal loans) in the USA:

    Payment Amount = Loan Amount / {[1-(1+i)^(-n)]/i}

    where i is the periodic interest rate and n is the number of periods in the loan. In almost all cases i is the quoted annual percentage rate divided by 12, and n is the number of months in the loan.

    Since you have 42 payments remaining on your loan, your balance should be about $14,900. Refinancing at 6.5% for 48 months makes your payment about $353. 6.25% for 60 months makes your payment about $290. 6.25% for 36 months makes your payment about $455.

    However I think you're correct to not want to extend the loan any longer. If you refinanced and continued paying $413, your loan would end just one month sooner (41 months from now), but your last payment would be about $100 under the 6.5% option and about $20 under the 6.25% option.

    As long as there aren't any refinancing costs or prepayment penalties, you should refi at the lowest rate possible and make larger payments than required.
     
  11. Michael D. Bunting

    Michael D. Bunting Screenwriter

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    Thanks for the informative reply Denward......and I appreciate all the help (everyone!).

    The loan dept at my bank is closed for the night now....but I will be calling again tomorrow night (my time from Kuwait) and go ahead and do the refinancing then. Will probably go w/:

    3 years @ 6.25% APR with payments @$467.00 a month

    Time for bed! Thanks again all!
     

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