Should I re-fi to save 1%?

[Anonymous]

Hello everyone,

currently have an auto loan from BMW Financial at 6.96% which i got approx 2 years ago somehow with a 575 fico. My scores are now around 630 and i am pre-qualified with CapitalOne for a 5.96% rate. So i save about 1% in interest over the course but i would be shortening my term and eseentially payoff the car 3-4 months quicker. Downside is that my payments go from $670 to $700 bu tthat's alright if it means I payoff quicker. So does it make sense to re-fi for only 1%? I am a bit upside-down on the car so i would need to pay in the diifference probably as well.

[EddieK]

If you don't mind paying more each month, yes, re-fi.  Saving money is saving money.

[Appleman]

Slow your roll:

You will get a new HP (probably not an issue but could be if it tips you into a new bucket related to inquiries)

You go from a loan that has been paid down (starting amount - current balance = % paid off) to a loan that looks brand new (0% paid off).

This could be an issue because the new loan will be at 100% utilization versus say 80% utilization for the current loan (80% is a number I made up).

Granted installment credit (auto loan) is looked on more favorably than revolving debt (credit card debt).

How is the AAoAs for your credit profile? This will reduce the AAoA (Average Age of Accounts) could be a problem for a thin credit profile.

$10,000 X .01 (1% savings) = $100 saved per year or $8.34 a month.

EddieK is correct in that saving money is saving money, but there are other factors that may make a difference in your decision.

[Anonymous]

Thank you! This is very good information and something I had not considered. MY AAoA is low, 3.5 years so it probably makes sense to keep this current loan.

[Appleman]

I see you were anticipating paying more on the payment for the re-fi. Go ahead and pay the higher amount now each payment. That will at least decrease the total amount of interest paid on the loan.