Refinance or Keep Paying Insane Interest Rate?

[tieton]

Good morning eveyone, I have a refi question. So I've been having a bit of an app spree and thought I would look into getting my auto loan out of the hands of a sub-prime at the going rate of 34.9%! Yep, you read that right. I applied yesterday through my credit union and was offered $30,000 at a 2.59% APR. The dilemna is, the original loan was supposed to be a 36 month loan on $6645. Somehow magically, mysteriously, the loan will not be paid off by the maturation date of Feb 25th, 2015. So, with a balance left of about $3208, it will not be paid off in the next 5 months, but more like 11. At this point, is it worth refinancing or should I just keep paying with the current finance company? The intent is not to lower my monthly payments of $300.56, but to get out from under the 34.9% APR and save some money if I can refi at 2.59%. I'm just not sure if this translates into savings over the life of the loan? Thanks!

[SamsungHDTV]

Yes refinance, no doubt. So long as there is no origination fees for the new loan. Refinance, and keep paying the amount you were on the original loan. You would be saving over $1000 in interest charges.

Loan amount $3208 x 34.9% = $1120 in interest charges over 12 months.

Loan amount $3208 x 2.59% = $83 in interest charges over 12 months.

This calculation is a little off because your loan is 11 months left. But use for examples sake.

[tieton]

Excellent Samsung, thank you. When you put it into mathematical terms like that it is crystal clear! Hopefully, they will allow a 12 month term.

[SamsungHDTV]

Keep in mind you were approved for a purchase. A refinance is a different story and will depend greatly on your vehicle age and miles. Also, the credit union may have a minimum loan amount. So make sure to ask these kinds of questions.

[coterotie]

Also check to see if this is a rule of 78's loan.  If so, you may literally save nothing and end up costing yourself money.  Check the original loan documents, the language you are looking for is:

You will be entitled to a refund of the interest (rule of 78 loan)

You will not be entitled to a refund of the interest (simple interest)

If it is a simple interest loan you will always be better off refinancing to a lower rate.  Rule of 78's is a maybe.

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@tieton wrote:

Excellent Samsung, thank you. When you put it into mathematical terms like that it is crystal clear! Hopefully, they will allow a 12 month term.

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[tieton]

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@coterotie wrote:

Also check to see if this is a rule of 78's loan.  If so, you may literally save nothing and end up costing yourself money.  Check the original loan documents, the language you are looking for is:

You will be entitled to a refund of the interest (rule of 78 loan)

You will not be entitled to a refund of the interest (simple interest)

If it is a simple interest loan you will always be better off refinancing to a lower rate.  Rule of 78's is a maybe.

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@tieton wrote:

Excellent Samsung, thank you. When you put it into mathematical terms like that it is crystal clear! Hopefully, they will allow a 12 month term.

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Great info, thank you. I haven't checked my loan paperwork yet, but I believe it is a simple interest loan. I suppose it is too late at this point since the refi is a done deal! Thanks you guys for the input. My credit union was going to give me all the way up to a three year term, but I opted for the 2 year at a payment of $144. I will still pay my previous payment of $300 to get it paid off in a year. The interest settled in at 2.99%. I was told  It was either going to be 2.59 or 2.99, and I am perfectly happy with 2.99%. WAY better than 34.99. The best I've ever had actually. Even after telling her my current rate, my loan officer said, "I didn't even think that was legal." LOL! It is nice to have a loan at much better terms, with a reputable institution instead of being treated like a dregg of humanity.

[SamsungHDTV]

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@tieton wrote:

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@coterotie wrote:

Also check to see if this is a rule of 78's loan.  If so, you may literally save nothing and end up costing yourself money.  Check the original loan documents, the language you are looking for is:

You will be entitled to a refund of the interest (rule of 78 loan)

You will not be entitled to a refund of the interest (simple interest)

If it is a simple interest loan you will always be better off refinancing to a lower rate.  Rule of 78's is a maybe.

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@tieton wrote:

Excellent Samsung, thank you. When you put it into mathematical terms like that it is crystal clear! Hopefully, they will allow a 12 month term.

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Great info, thank you. I haven't checked my loan paperwork yet, but I believe it is a simple interest loan. I suppose it is too late at this point since the refi is a done deal! Thanks you guys for the input. My credit union was going to give me all the way up to a three year term, but I opted for the 2 year at a payment of $144. I will still pay my previous payment of $300 to get it paid off in a year. The interest settled in at 2.99%. I was told  It was either going to be 2.59 or 2.99, and I am perfectly happy with 2.99%. WAY better than 34.99. The best I've ever had actually. Even after telling her my current rate, my loan officer said, "I didn't even think that was legal." LOL! It is nice to have a loan at much better terms, with a reputable institution instead of being treated like a dregg of humanity.

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Congrats. On to good credit and saving money on interest charges.

[Anonymous]

SamsungHDTV,

I have a question for you. I currently have an auto loan with Chase at 2.14%. I've had the loan for a year and since then my credit score has improved. Would it be possible to ask Chase to reduce my interest rate? Yes i know, its not much or probably worth the hassle but i HATE paying interest. Thanks in advance!

[Anonymous]

According to Reuters today (11-25-14) rates are running 2.19% for 36 mo. refi to 2.41% for 60 mo. refi. The rates change daily but not usually to drastically.

[Anonymous]

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@ArmyVietVet wrote:
According to Reuters today (11-25-14) rates are running 2.19% for 36 mo. refi to 2.41% for 60 mo. refi. The rates change daily but not usually to drastically.

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Thank

Thank you ArmyVietVet. So don't bother? If i ask my current lender to reduce the interest rate, is that still considered refinancing or a rate modification? They would probably to a hard inquiry and i'd rather not. Every point counts!