Auto refinancing is one of the best kept secrets around for saving you money, but most people never thought of refinancing their cars before. Car refinance is the same as home refinance. When refinancing car loans, you pay off your current car loan with a refinancing car loan from a different lender that has a lower APR. This is good for you because refinancing auto loans makes your monthly car loan payments much less, and your interest rate drops, which can allow you to pay off the balance of your car loan even quicker. Record numbers of homeowners refinanced in 2001 and 2002, and now many car owners are realizing you can save thousands by refinancing auto loans too. Car refinancing has become a very popular trend with dropping interest rates. It's like finding a wad of cash you didn't know you had in your clothes after doing the laundry. Use the money you save to pay off credit card debt, or accelerate your car loan payoff. You don't want to be paying off your Camry for the next 5 years do you?
It's the absolute most important priority that people with bad credit who are paying a high APR need to Refinance Car Loans to a lower APR.
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, or you had no previous credit, or the dealer lied about your credit and charged you more 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 6% APR :
Interest Rate (APR) |
Monthly Payment |
Total Interest on Car Loan |
21% |
$446.38 |
$10,282.83 |
06% |
$318.99 |
$2,639.47 |
Your Current Payment at 21% APR would be : Around $446
Your New Car Loan Payment at 6% APR is : Around $319
You Save : $7,643
Send in an extra $50 monthly principle more than the $319, 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 $7,643 is better off in your bank account, not theirs. Of course your actual APR would depend on your credit rating. Not everyone gets the 6% 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.
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 and look 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.