How can refinancing my auto loan save me money?

[swbsam]

I'm looking at refinancing a car loan for a new car from about a year ago, when our credit was pretty mediocre.

The pay off amount according to wachovia is $18,000, which includes the interest (at 8.25%). Dividing that by the 4 years remaining and our payments are exactly the same, since interest is already included in the pay off amount.

I don't get how refinancing, even though I'm fairly certain we'd get 4.25%, would change anything, since the pay-off already includes interest. Or am I reading this wrong?

 

[JulesMaximus]

What is your monthly payment now?

Typically, you will refinance to get a lower monthly payment through a lower interest rate or by extending the length of the loan...or both.

 

[swbsam]

Originally posted by: JulesMaximus
What is your monthly payment now?

Typically, you will refinance to get a lower monthly payment through a lower interest rate or by extending the length of the loan...or both.

My monthly payments $375, but the goal is to lower my payments so that I can actually pay it up quicker and not extending the loan.

What I dont' get is $18102 divided by 48 months (the remainder on my current loan) already equals 370-something, so interest is obviously included in the pay off amount

 

[JulesMaximus]

Originally posted by: swbsam

Originally posted by: JulesMaximus
What is your monthly payment now?

Typically, you will refinance to get a lower monthly payment through a lower interest rate or by extending the length of the loan...or both.

My monthly payments $375, but the goal is to lower my payments so that I can actually pay it up quicker and not extending the loan.

What I dont' get is $18102 divided by 48 months (the remainder on my current loan) already equals 370-something, so interest is obviously included in the pay off amount

What will your monthly payment be at the lower interest rate? It doesn't make sense that they would be the same nor does refinancing make sense if it doesn't a) lower your monthly payment or b) allow you to pay it off sooner at the same monthly payment.

 

[JTsyo]

Originally posted by: JulesMaximus

Originally posted by: swbsam

Originally posted by: JulesMaximus
What is your monthly payment now?

Typically, you will refinance to get a lower monthly payment through a lower interest rate or by extending the length of the loan...or both.

My monthly payments $375, but the goal is to lower my payments so that I can actually pay it up quicker and not extending the loan.

What I dont' get is $18102 divided by 48 months (the remainder on my current loan) already equals 370-something, so interest is obviously included in the pay off amount

What will your monthly payment be at the lower interest rate? It doesn't make sense that they would be the same nor does refinancing make sense if it doesn't a) lower your monthly payment or b) allow you to pay it off sooner at the same monthly payment.

That's true if he does it through Wachovia but if he refinances though another company, wouldn't they need to first buy out the loan?

 

[swbsam]

Originally posted by: JulesMaximus

Originally posted by: swbsam

Originally posted by: JulesMaximus
What is your monthly payment now?

Typically, you will refinance to get a lower monthly payment through a lower interest rate or by extending the length of the loan...or both.

My monthly payments $375, but the goal is to lower my payments so that I can actually pay it up quicker and not extending the loan.

What I dont' get is $18102 divided by 48 months (the remainder on my current loan) already equals 370-something, so interest is obviously included in the pay off amount

What will your monthly payment be at the lower interest rate? It doesn't make sense that they would be the same nor does refinancing make sense if it doesn't a) lower your monthly payment or b) allow you to pay it off sooner at the same monthly payment.

That's what i don't understand, since the pay off amount includes interest I don't see how I can save money. In fact, it seems like it'll be more expensive (4.25% over the payoff amount, which seems to include interest).

Is it normal for payoffs to include 4 years worth of interest?

 

[vi edit]

If it's a conventional loan then the "payoff" will only be the principal amount.

Assumption:

Original loan amount $22,000
Finance term: 60 months
Rate: 8.25%
Payments: $448/mth

After the first year your principal balance is around $18,300

Now if you refinance for the remaining 48 months @ 4.5% your payments on $18,300 are $417.

 

[Pantoot]

Sounds like you got a precomputed loan.
Sucks.

 

[swbsam]

Originally posted by: Pantoot
Sounds like you got a precomputed loan.
Sucks.

Sounds like that's the case. Doesn't really suck that much, I'll just have to pay it off quicker than expected, or pay off until I owe less than the blue book used value and trade it in, in 2 years or so.

 

[OCGuy]

Um...the interest should only be charged up until the payoff point...

 

[mcmilljb]

If I had a 8.25% loan, I would be paying that shit down fast as hell or trading it in.

Your pay off amount is just the principal. They compute the interest each month.

 

[vi edit]

Originally posted by: swbsam

Originally posted by: Pantoot
Sounds like you got a precomputed loan.
Sucks.

Sounds like that's the case. Doesn't really suck that much, I'll just have to pay it off quicker than expected, or pay off until I owe less than the blue book used value and trade it in, in 2 years or so.

No. That type of loan really truely does suck. Check your documents and make sure there isn't a prepayment penalty.

 

[swbsam]

Originally posted by: mcmilljb
If I had a 8.25% loan, I would be paying that shit down fast as hell or trading it in.

Your pay off amount is just the principal. They compute the interest each month.

Isn't there a major loss for trading in a car you still owe $18,000 on?

I'm in no rush to trade in my car though, I think we'll need something bigger in 2 years.

 

[JulesMaximus]

Originally posted by: swbsam

Originally posted by: mcmilljb
If I had a 8.25% loan, I would be paying that shit down fast as hell or trading it in.

Your pay off amount is just the principal. They compute the interest each month.

Isn't there a major loss for trading in a car you still owe $18,000 on?

I'm in no rush to trade in my car though, I think we'll need something bigger in 2 years.

Depends on what the car is worth. If the car is worth $12,000 then hell yeah there's a major loss. If it is worth $25,000 (not likely in your case) then you actually have equity there you can use toward the new car.

BTW-Never go with dealer retail when valuing your trade-in. Best you could hope for is something between trade-in value and private party value.

 

[swbsam]

Originally posted by: JulesMaximus

Originally posted by: swbsam

Originally posted by: mcmilljb
If I had a 8.25% loan, I would be paying that shit down fast as hell or trading it in.

Your pay off amount is just the principal. They compute the interest each month.

Isn't there a major loss for trading in a car you still owe $18,000 on?

I'm in no rush to trade in my car though, I think we'll need something bigger in 2 years.

Depends on what the car is worth. If the car is worth $12,000 then hell yeah there's a major loss. If it is worth $25,000 (not likely in your case) then you actually have equity there you can use toward the new car.

BTW-Never go with dealer retail when valuing your trade-in. Best you could hope for is something between trade-in value and private party value.

Thanks for the info - I'll be sure to get my loan down to below book value and will trade the sucker off once i have some equity.

 

[Pantoot]

Originally posted by: swbsam

Originally posted by: JulesMaximus

Originally posted by: swbsam

Originally posted by: mcmilljb
If I had a 8.25% loan, I would be paying that shit down fast as hell or trading it in.

Your pay off amount is just the principal. They compute the interest each month.

Isn't there a major loss for trading in a car you still owe $18,000 on?

I'm in no rush to trade in my car though, I think we'll need something bigger in 2 years.

Depends on what the car is worth. If the car is worth $12,000 then hell yeah there's a major loss. If it is worth $25,000 (not likely in your case) then you actually have equity there you can use toward the new car.

BTW-Never go with dealer retail when valuing your trade-in. Best you could hope for is something between trade-in value and private party value.

Thanks for the info - I'll be sure to get my loan down to below book value and will trade the sucker off once i have some equity.

If it is in fact a precomputed loan, paying it off faster or trading it in won't save you anything.

 

[swbsam]

Originally posted by: Pantoot

Originally posted by: swbsam

Originally posted by: JulesMaximus

Originally posted by: swbsam

Originally posted by: mcmilljb
If I had a 8.25% loan, I would be paying that shit down fast as hell or trading it in.

Your pay off amount is just the principal. They compute the interest each month.

Isn't there a major loss for trading in a car you still owe $18,000 on?

I'm in no rush to trade in my car though, I think we'll need something bigger in 2 years.

Depends on what the car is worth. If the car is worth $12,000 then hell yeah there's a major loss. If it is worth $25,000 (not likely in your case) then you actually have equity there you can use toward the new car.

BTW-Never go with dealer retail when valuing your trade-in. Best you could hope for is something between trade-in value and private party value.

Thanks for the info - I'll be sure to get my loan down to below book value and will trade the sucker off once i have some equity.

If it is in fact a precomputed loan, paying it off faster or trading it in won't save you anything.

true, I have no idea what I'm going to do frankly, but refinancing isn't going to happen

 

[MixMasterTang]

You need to look at a Amortization schedule.

If you had a 23,000 dollar loan at 8.25% you will have monthly payments of 469.11 and will pay a total of 5,146.82 in internet over the life of the loan. After 1 year you will have already paid 1,753.10 of that interest and have a remaining balance of 19,123.73. If you were to refinance that amount over a 48 month period your payments would go down to 433.93 a month and you would pay 1705.31 in interest for those 48 months.

Total interest paid would be 3458.41 which would be a savings of $1688.41.

The other option would be to refinance but still pay the same 469.11 each month, you would pay off the car 4 months early and save an addtional $143.