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Who should refinance their auto loans? What APR % should you look to refinance a car at?
Anyone who did not get a 0% to 3% APR car loan from the carmakers should consider a car loan refinance. Even if you got a decent APR auto loan, you should consider car refinancing. I like to use the 1% rule. After you buy your car, start watching the auto refinancing interest rates at sites like Capital One Auto Finance and HSBC Auto Finance looking for refinancing auto loan rates at least 1% less than your current car loan interest rate. Use the calculators on these car refinance lender sites to see how much it saves you to refinance your car. You'll be astounded at how much money you just found, and you'll stop the hemorrhaging in your bank account. It's true, most bad credit borrowers can indeed refinance to a lower APR, but many don't think to try because they were "programmed" or duped by the dealer into thinking they are stuck at 21-25% APR. Real world auto refinancing example
Suppose you borrowed $16,500 for 60 months on your new Honda Accord. Let's assume your credit was bad, you had no previous credit, or the dealer lied about your credit and charged you a higher APR than you should have paid. This happens quite a bit. Greed is good. Suppose the dealer "got you approved when no one else would" at 21% APR for a 60 month car loan. Sound familiar? So you start paying off your car loan for a few months, then refinance your car loan with another lender at 7% APR. Interest
Rate (APR) | Monthly
Payment | Total Interest
On Car Loan | 21% | $446.38 | $10,282.83 | 7% | $330.63 | $3,337.57 |
Your current payment at 21% APR would be: around $446.38
Your new car loan payment at 7% APR is: around $330.63
You save $6,945! |
Send in an extra $50 monthly principle more than the $330, and your loan will pay off even quicker. See how powerful auto refinancing can be for you? Most people have no concept of the time value of money, and just how bad high interest car loans are for your bank account, and what a difference 1% makes. That $6,945 is better off in your bank account, not theirs. Of course your actual APR would depend on your credit rating. Not everyone gets the 7% or lower APR, but I'm sure it's got to be lower than what you're paying now. It's very important to refinance your auto loan early, because with car loans, the interest is mostly paid in the earlier payments. The earlier your car loan is refinanced, the more money you save. Our examples here are based on savings only if you refinance during the first couple of months of a car loan. If you wait until the 4th year to refinance your car loan, your savings will be a lot less.
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