cancel
Showing results for 
Search instead for 
Did you mean: 

Question about Auto Loan Refinancing

Auto Loans for ANY Credit Situation. Immediate Response.
Advertiser disclosure
Highlighted
New Member

Question about Auto Loan Refinancing

So long story short, filed BK 2 years ago, was approved right after for a new $30,000 car with a 10.9% interest rate for 72 months

 

Just applied for a refinance, was approved with a 5.47% rate, so basically half and I want to take it.  

 

Question is, they provided me with like 8 different terms ranging from 48 months to 72 months, but they all have the exact same rate attached to them.

 

I can afford all of the payment options, and went into this thinking to pick the lowest term to pay the car off the quickest and save on interest, as i figured the longer the terms, the higher the interest rate like when I purchased the car in the first place.

 

Is there any disadvantage to picking the longest term in this situation, and just sending in more money with each payment to pay it off as quickly as I feel comfortable with, but choosing this option to leave myself a buffer in case something drastic were to happen to my financial situation?

 

It seems like there is zero disadvantage (beyond self-control to not pay more) to choosing the longest term possible in this case.

 

or is this typical for a refi???

 

thank you so much for your time!

 

Is there any disadvantage

Message 1 of 10
9 REPLIES 9
Valued Contributor

Re: Question about Auto Loan Refinancing


@Snoopy916 wrote:

 

Is there any disadvantage to picking the longest term in this situation, and just sending in more money with each payment to pay it off as quickly as I feel comfortable with, but choosing this option to leave myself a buffer in case something drastic were to happen to my financial situation?

 

It seems like there is zero disadvantage (beyond self-control to not pay more) to choosing the longest term possible in this case.


As long as the loan doesn't have an early-payment penalty, yes, this makes sense.

 

Just check the paperwork first!

 

EQ8:850 TU8:850 EX8:850
EQ9:850 TU9:850 EX9:850
EQ5:809 TU4:789 EX2:819 - 2019-09-06
Message 2 of 10
Established Contributor

Re: Question about Auto Loan Refinancing

If you plug in the numbers, you’ll see that even if the rate is the same, the LONGER the term, the MORE interest you’ll pay. So if you want to minimize the amount of interest, pick the shortest term you’re comfortable with.


November 2019:

Stats:
Message 3 of 10
New Member

Re: Question about Auto Loan Refinancing

Yes i get that what i am saying is i could basically set my own payment by picking the longest term and, say pay whatever the shortest terms payments were (or more) on my own and it would be the same in the end-or even less since i can always pay even more, so its beneficial to pick the longest term possible in this case it seems
Message 4 of 10
Established Contributor

Re: Question about Auto Loan Refinancing


@Snoopy916 wrote:
Yes i get that what i am saying is i could basically set my own payment by picking the longest term and, say pay whatever the shortest terms payments were (or more) on my own and it would be the same in the end-or even less since i can always pay even more, so its beneficial to pick the longest term possible in this case it seems

Well, yes and no. You can pay more than your payment due, but you are still paying interest on it. The only way to actually pay more and reduce the interest is to make a principal only payment. So while picking the longest term seems like a great idea, you're still going to pay a lot more interest than a shorter term (even with extra payments). That's why I suggest that you pick the shortest term you are comfortable with, that leaves you with some breathing room while still saving on interest. If you can afford the payments even on the shortest term, I don't suggest that you automatically go for the longest term, but rather something in between. Hope that makes sense.



November 2019:

Stats:
Message 5 of 10
Valued Contributor

Re: Question about Auto Loan Refinancing


@KLEXH25 wrote:

@Snoopy916 wrote:
Yes i get that what i am saying is i could basically set my own payment by picking the longest term and, say pay whatever the shortest terms payments were (or more) on my own and it would be the same in the end-or even less since i can always pay even more, so its beneficial to pick the longest term possible in this case it seems

Well, yes and no. You can pay more than your payment due, but you are still paying interest on it. The only way to actually pay more and reduce the interest is to make a principal only payment. So while picking the longest term seems like a great idea, you're still going to pay a lot more interest than a shorter term (even with extra payments). That's why I suggest that you pick the shortest term you are comfortable with, that leaves you with some breathing room while still saving on interest. If you can afford the payments even on the shortest term, I don't suggest that you automatically go for the longest term, but rather something in between. Hope that makes sense.


OP has exactly the right idea... although yes, you do need to make sure your extra payments are considered principal payments.

 

But if you (for instance) take out a 72-month loan, and every month you make both the "regular" payment and at the same time, a principal payment equal to the difference between the 72-month payment and the 36-month payment... You'll end up paying exactly the same amount of interest as the 36-month loan would have been. (Assuming, as in the OP's case, that the rate is the same for both loans.)

 

This does allow for both the choice of less total interest (by paying it off quicker), or more monthly flexiblity if needed (by paying the longer-term amount only).

 

You do need to make sure that there is no pre-payment penalty, and also make sure that you know how to mark the extra payment amount as a principal payment (vs an early payment for the following month), which some lenders can make tricky.

 

EQ8:850 TU8:850 EX8:850
EQ9:850 TU9:850 EX9:850
EQ5:809 TU4:789 EX2:819 - 2019-09-06
Message 6 of 10
Established Contributor

Re: Question about Auto Loan Refinancing


@iv wrote:

@KLEXH25 wrote:

@Snoopy916 wrote:
Yes i get that what i am saying is i could basically set my own payment by picking the longest term and, say pay whatever the shortest terms payments were (or more) on my own and it would be the same in the end-or even less since i can always pay even more, so its beneficial to pick the longest term possible in this case it seems

Well, yes and no. You can pay more than your payment due, but you are still paying interest on it. The only way to actually pay more and reduce the interest is to make a principal only payment. So while picking the longest term seems like a great idea, you're still going to pay a lot more interest than a shorter term (even with extra payments). That's why I suggest that you pick the shortest term you are comfortable with, that leaves you with some breathing room while still saving on interest. If you can afford the payments even on the shortest term, I don't suggest that you automatically go for the longest term, but rather something in between. Hope that makes sense.


OP has exactly the right idea... although yes, you do need to make sure your extra payments are considered principal payments.

 

But if you (for instance) take out a 72-month loan, and every month you make both the "regular" payment and at the same time, a principal payment equal to the difference between the 72-month payment and the 36-month payment... You'll end up paying exactly the same amount of interest as the 36-month loan would have been. (Assuming, as in the OP's case, that the rate is the same for both loans.)

 

This does allow for both the choice of less total interest (by paying it off quicker), or more monthly flexiblity if needed (by paying the longer-term amount only).

 

You do need to make sure that there is no pre-payment penalty, and also make sure that you know how to mark the extra payment amount as a principal payment (vs an early payment for the following month), which some lenders can make tricky.

 


OP asked for the disadvantages, and I am listing them. 

 

My lender (TFS) requires a mailed in check to a PO box for pricipal only payments. So if that's the case, and OP is willing to do that EVERY month, so be it.



November 2019:

Stats:
Message 7 of 10
New Member

Re: Question about Auto Loan Refinancing

Thanks for all the replies. Its with capital one and they make it very easy to make a principal only payment, unlike some other lenders as there is a button specifically for that. My plan was to make the minimum payment each month and then put the extra money as principal-only. But if this ends up costing more i wont choose the longest term
Message 8 of 10
Valued Contributor

Re: Question about Auto Loan Refinancing


@KLEXH25 wrote:

My lender (TFS) requires a mailed in check to a PO box for pricipal only payments. So if that's the case, and OP is willing to do that EVERY month, so be it.


Ouch.  Yeah, that's the kind of "tricky" that I mentioned some lenders do for principal payments.

(Still not as bad as having a pre-payment penalty, though!)

 

Thankfully, it sounds like OP's lender makes it easy.

 


@Snoopy916 wrote:
Thanks for all the replies. Its with capital one and they make it very easy to make a principal only payment, unlike some other lenders as there is a button specifically for that. My plan was to make the minimum payment each month and then put the extra money as principal-only. But if this ends up costing more i wont choose the longest term

It sounds like you'll be fine. (Assuming they are still offering the same rates for different-length loans, anyway.)

 

EQ8:850 TU8:850 EX8:850
EQ9:850 TU9:850 EX9:850
EQ5:809 TU4:789 EX2:819 - 2019-09-06
Message 9 of 10
New Member

Re: Question about Auto Loan Refinancing

I have no idea why but the 72 month option is actually .01% lower than the 48. All the other lengths are exactly the same
Message 10 of 10
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.