Here's a little background info: Back in May 2013 I bought a new truck for work, and I financed it through a lender at the dealership with an APR of 4.5% for 84 months, which was the cheapest rate & term length I could get at the time. When I bought my truck I wasn't really concerned with having all the "bells and whistles" and mainly used it for commuting back and forth for work. I planned to keep it for the life of the vehicle, but it's pretty much a base model with a basic radio with USB capability. Also, it can be hard to park in some areas due to it being pretty big, and it doesn't have any rear parking sensors and camera. After having had a bit of difficulty in some situations, I've realized I want/need parking sensors along with a rear view camera on a big middle screen so I can see when I put it in reverse, but I recently found out I can't even upgrade the radio to an "Infotainment system with a Display" because they didn't make a kit upgrade for the vehicle for the model year because the upgrade is integrated with the entire trucks computer system, and I'm not entirely sure on the specifics, but basically I can't get the upgrade I want. Also, they're coming out with RAM 1500 Ecodiesel, which is projected to be great on gas mileage (up to 21cty/28-30 hwy/ 22 combined, which is phenomenal for a truck), so I'm very interested.
I decided that I will trade the vehicle in after 18-24 months of having it just so I'm not upside down on my current auto loan. I have an opportunity to refinance the truck with my current bank at a somewhat lower rate & term length (APR of 3.5% for 60 Months). If I wait about 6 months, my rates could get even better (Possible APR of 1.79% for 60 months at the best) since I am getting paid a lot more now along with a bonus, which means the debt on my credit card is getting a lot lower, which will increase my current credit score.
I'm unsure if I should even bother refinancing my current auto loan if I'm going to trade in my truck after 18-24 months anyway, and I've paid off about 8 months worth on my current auto loan (APR 4.5%, 84 months, $477.68 monthy payments). So my question is, which of these options would be better for me when I'm trading in my current vehicle for a new car after having it for 18-24 months :
1. Refinance my current auto loan (APR 4.5%, 84 Months = $477.68 monthly) to the new auto loan (APR 3.5%, 60 months = estimated $697 monthly) and still trade it in.
2. Keep everything the same on my current auto loan and trade it in.
I would like some advice, and I appreciate your time. Thanks!
If you have the funds to pay approx $690 per month until you trade-in, then go that route. Not only will you pay down the loan balance quicker (ie, less in interest), it will also lessen the financial impact of the trade-in value the dealership will offer you (difference between the loan balance and the trade-in value).
Otherwise, keep your current plan until you trade-in.
trade in later if you still want to do that but right now get that loan shortened and start to make some payments to bring loan under the value of truck because I bet you are way upside down right now
Thanks for the advice guys! Last year, my credit score dropped from 729 (5/4/2013, when I bought my truck) to 666 (8/17/2013, high credit card use) in a span of like 3 months. Recently, it increased from 676 (1/14/2014) to 697 (1/17/2014,), and I'm sure it'll keep going up since I'm been getting paid more, along with an increase of my credit limit from $4,500 to $12,500, and I've been paying off my credit card balances to stay about under ~35% of the limit. I can afford the refinancing price, but I'm going to wait to refinance for a few months to get my credit score up to at least 720 again (hopefully before the 1 year mark of having my truck) so that I can get an even lower refinancing rate than 3.5% APR. I decided that I'm going to wait at least two years before trading my truck in, but more importantly I'm going to look for specials like end of the year deals with 0% APR financing when I do trade it in. I was definitely inexperienced when I bought my truck, and I won't make the same rookie mistakes again.
Good plan. What you can do too is put extra principal to your car payment so that when you get to the trade in time you won't be as upside down. In fact, if you want to make the higher payment of $6XX you can do that and every dollar over the interest amount will apply to your principal. You can do that without a refi. Most people tend to think of their payments as the exact amount when in reality it is more accurate to think of it as a minimum amount. If you do it this way, you acclerate your paydown but if you run into a month where you need to make your regular $4XX payment you can do so without penalty. It is the best of both worlds when you are not refinancing yet planning a trade in 24 months.
Go to bankrate.com and use the auto calculator to figure out how much you will save in interest if you acclerate the payment above. You might be pleasantly surprised! You will have to look at the amortiztion schedule to compare. Good luck.