Refinancing Your Car

How much can you save by refinancing your car?

What? Are vehicles so expensive that people want to refinance them? Ads from a credit union just started showing up on my iPad. Are there that many 8-year loans out there for cars? Do you know anyone that might do this? I’m still shaking my head in disbelief. What do you think?

Yes …………….

Wife cosigned for daughters used car loan. Daughter has been intermittent on payments. Wife more or less felt guilty for pushing her into a car purchase, as she was not comfortable with the 02 saturn as daughters daily driver. Daughter wanted the loan to help her credit rating. We just paid off the loan last week, and giving her the title for her birthday. It should be fine for her credit rating, glad we could do it, but you would have to crunch the numbers for me to even consider a refinance a good idea. A car is not a house, depreciation and repairs make this look like a loosing situation to me.

Refinancing a depreciating asset is a fools game.

And a fool and their money are soon parted.

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I’ve never heard of anyone doing that, but if a person could get a lower interest rate, might make sense. I’d guess however that the refinance fees might put the kibosh on a reduction in loan rate deal. I expect the folks who this is marketed to actually just need their monthly car payment reduced to make ends meet, and are willing to extend the loan by a few years in return.

Yes. Depending where you live the cost of a new car can be half of what a decent house will cost you. Now that’s not to say that buying that car is a smart thing to do, but many people do just that. On top of that, there is a segment of the population that has less than stellar credit. I work with someone who has a few holes in his work history and went through a messy divorce. A car loan for this person might have a 15% interest rate.

But for those with established and good credit (I imagine you are one of them), refinancing a car loan would never be needed. Either you pay cash for them or finance at a good rate to begin with.

As an aside, with low interest rates sometimes it just makes sense to finance a car. My wife bought a new car a year and a half ago. The car was $50K, with a $12K down payment the interest on a 4 year loan was 0.9%. Who wouldn’t want to use someone else’s money for less than 1%? It was a new car and we would keep full coverage insurance on it for several years anyway.

Now as for me, I’m a mechanic and buy a different $3000 car every couple of years and never have payments or full coverage.


If you got an auto loan from the dealership, and your credit isn’t so great, you might have an 8-12% APR loan. If you could refinance that loan with a credit union at 4-6% APR, it might be a good idea, especially if you’re struggling to keep up with the monthly payments.

That’s a big red flag right there. Part of your credit score is influenced by your debt-to-income ratio, so borrowing money off the books to pay off other debt is the ethical equivalent of falsifying financial statements. It’s like your daughter is her own personal Enron, and you’re a stockholder.

It sounds like it will all work out for the best, in spite of my knee-jerk reaction to that one sentence.

I’d suggestthat refinancing a car would result in a HIGHER interest rate. Why? Used cars interest rates are priced higher than new ones because the there is no warranty to cover repairs. Higher risk to the lender. The site below confirms this;

If you refinance a car at 4-5 years, you are trying to lower your monthly payment by spreading out the loan over a longer period but a higher rate. Again… fools game!

Refinancing could be used similar to a reverse mortgage. Cash in equity today and like many with the home mortgage plan to repay it.

But is that somewhat like 'having your cake and eating it too?" We all know you can’t do that, don’t we?

I remember when I bought my Regal in 1998 sitting in the finance area before closing the deal. There was another guy there buying a new Silverado. He traded his old one because he had a lot of problems with it. Unfortunately, he still owed a lot of money on the old loan. The dealer just rolled over the remaining balance into the new loan, of course. I’m sure the interest rate on that was quite high. I also recall thinking he shouldn’t buy such an expensive, highly optioned truck if he can’t afford it. I kept it to myself.

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…and if you have a lot of problems with a particular vehicle, why would you buy another of the same model? :crazy_face:


The guy obviously wasn’t the sharpest tool in the shed. I politely listened and empathized occasionally. He was clearly distraught and I didn’t want to make it worse.

I hate making payments on anything. It makes me feel as though I am a slave to my possessions. When my first wife and I were ready to build a house, we owned outright five choice acres in the country. I wanted to use the deed to the land as a down payment to borrow the money to have the house built. Both my first wife and I had tenure track positions and a good combined income. We had never borrowed money in our lives. The bank officer asked me where I had financed our car. When I told him I bought the car for cash, he asked what kind of car I drove. When I told him we owned a 1965 Rambler, which was seven years old at the time, he then asked why I drove such an old car. I was really angry. I told him that if it wasn’t good enough that we had savings, a steady income, and that if we did default, the bank would really make money on selling the property, I would take my business elsewhere. The loan officer then told me that no institution would lend me money since I didn’t have credit. I then said, “If that’s the case, I have enough to have the foundation poured. We will save money until we can have the house framed and enclosed. I can do electrical work, plumbing, and drywall. I will finish the house room by room as we save the money”. Amazingly, we got the loan.
For many years, I drove used cars. I suppose if I had a job where a new car was essential, I might finance a car. However, my used cars got me to work and back just fine.

Longer notes are more and more common. Also you have people rolling over upside down tradeins into the purchase. It’s less of an issue in the regular sedans and moderately priced cars but the SUV and Truck prices are crazy high. I think the new Ford and Chevy 3/4 and 1 ton trucks fully decked out are now approaching $100,000. Just and average 4 door truck is going to be $40-50K+. People are already stretched too thin and the way for them to ease up the monthly budget is to stretch the payments out longer and longer. This is a recipe for disaster.

The sub prime predatory auto lending is a big thing right now. The default rates are very high. People with poor credit or no credit get hammered the most. They are stuck going to these used dealers that prey on them. They may pay twice as much for a used car as someone with good credit or a cash buyer. On top of that the dealer requires stuff like life insurance, gap insurance, and various other fees that make the vehicle even less affordable.

In my area, I have seen private cars equipped with license plate scanners. They drive through the parking lots at offices and shopping centers looking for repo cars.

I have a hard time not commenting on this. I’ve had a bank account since about 12 and savings and checking since 15 and also a credit card at 16. So that’s how my credit was first established. Of course back when the bank reported everything to the local credit bureau before everything went profit making and global.

On the one hand, you have to now consider that cars are kept a lot longer now than they used to be. Do I think 6 or 8 year car loans on a quickly depreciating asset are a little excessive? Yeah, but then if you are going to keep a car for 10 years and are in a situation to handle a loss of job or totaled car while it is upside down value vs loan, something to consider.

I think it depends on the current interest rate versus what a new rate would be and how the interest is being calculated. As I said before in the bad old days of the 80’s, the best bank loan I could get with excellent credit was 18%. When the rates came down in two years I went to refinance it but it wouldn’t make any difference due to the rule of 78ths. For two years I had been paying all the interest and what was left was principle. But that was four years and the rule of 78ths which is not used much anymore. At any rate you do what you have to do at that period of life but do not take out a home equity loan to pay a car. Just either hang in and pay it or maybe even lease for a few years if you have to. Nothing worse than an old undependable car eating up everything in repairs. Except maybe not having enough to eat.

To answer the question though, no I don’t know anyone that has an 8 year loan or who has refinanced, but I suspect they are out there.

I just ran across an ad for automobile refinancing by a Mississippi credit union. The lure was 1.99%- 15 cash back-skip the first 3 months payments. I hope I never find myself in need of considering such offers.

There are too many people getting sucked down the credit hole. I never had to take classes on how to be smart with money, wish I had.

I’ll be the lone dissenting voice here as I actually have refinanced a car. Now, I wasn’t rolling bad debt into worse debt (I have rolled the balance of an existing loan into a new one and regretted it) - in this case, the loan I already had got sold to a different lender, one which was apparently in the Stone Age as they offered no way to pay electronically, and payments by personal check wouldn’t be credited until the check cleared. Faced with the choice of mailing my payment 2 weeks in advance of the due date or getting a certified check every month, I decided to refinance the loan through my wife’s credit union (where I should have gotten the loan to start with).

It was quite easy - some of you guys seem to have the impression it’s like applying for a mortgage, and it certainly wasn’t for me. The only caveat is that (as mentioned above), a refinance is equivalent to a used purchase for interest rate purposes, but the credit union’s rate was actually better than the dealer’s had been.

Back when I was truck shopping, I looked at a used truck at a large dealer near Memphis. They wanted to run my credit and all that before negotiating a price, so I obliged. I have zero debt and own a 2013 Highlander, my two older vehicles, and I own my own house. They came back with a payment plan for the truck (rather than an actual price that I could buy it for as I wanted in the first place). I glanced at the payment plan and noticed an interest rate in the teens. I asked why they put that aggressive rate in there. They ran my credit, right…does it suck? They said that interest rate was there standard used auto rate. So yeah…if you got duped into a high rate, I guess I could see refinancing. Or just burrowing the money at a lower rate elsewhere and paying off the original loan…

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