Should I refinance my motorcycle loan?

[CorySoccer]

I purchased a motorcycle last year (almost to the date).  My FICO score was nowhere it is now.  When I originally applied it was in the low 600's.  Now my FICO ranges between the 3 CRAs of 745-755.  

My original loan was for 5 years at 10.95% apr.  The purchase price of the bike was $8,3124.94 which made my payment $180.81.

I have paid my loan down to $6,641.80.  

My question is this...should I refinance my existing loan?  Using an auto loan calculator...refinancing my current loan at 4% would bring my payment down to $153.08 (almost $30) a month.

Is this something I should attempt?  I don't know how refinancing affects your credit score since basically refinancing pays off/closes one account, and opens up a new loan (albeit with a smaller payment) along with what I assume would be a HP while refiancing.

Is there anything I'm missing or advice on what I should do?

[Anonymous]

That is a pretty accurate summary of how refinancing works. Your score may take a small dip, especially if you don't have any other open installment loans, as you will get at least one hard inquiry (more if you shop rates at multiple lenders) and your aggregate installment loan balance will increase.

A couple of things to keep in mind, are there any fees associated with the new loan? Fees could potentially offset the savings from the interest rate decrease, it is a relatively small balance you would be refinancing and some loan origination fees can be $600+

Is the new loan for the same term as your remaining payments? Stretching it out longer than your remaining payments does lower your monthly commitment, but may cost you more in the long run and will take you longer to be in an equity position with your bike. 

I recommend using a loan comparison tool and plugging in the details of your existing loan and the new loan and you can see how much you are going to save. I applied for a Capital One refi out of curiosity (since it is a soft pull) and even though the interest rate is just under half of my current rate, I actually wouldn't save any money due to the fees associated with the loan. Typically, refinancing early on in the loan lifecycle can generate significant svaings. As the loan matures the savings of refinancing can diminish quickly.

[TampaBAY86]

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@CorySoccer wrote:

I purchased a motorcycle last year (almost to the date).  My FICO score was nowhere it is now.  When I originally applied it was in the low 600's.  Now my FICO ranges between the 3 CRAs of 745-755.  

My original loan was for 5 years at 10.95% apr.  The purchase price of the bike was $8,3124.94 which made my payment $180.81.

I have paid my loan down to $6,641.80.  

My question is this...should I refinance my existing loan?  Using an auto loan calculator...refinancing my current loan at 4% would bring my payment down to $153.08 (almost $30) a month.

Is this something I should attempt?  I don't know how refinancing affects your credit score since basically refinancing pays off/closes one account, and opens up a new loan (albeit with a smaller payment) along with what I assume would be a HP while refiancing.

Is there anything I'm missing or advice on what I should do?

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Based on your numbers above, you will have an interest total of over $2500 if you stay with your current loan.

I'm not sure where the 4% came from, but if you can get that, with your current total due, for 48 months (loan will finish at the same time), your interest drops to an additional $500 from you have paid.  Payment will be close, but interest is the killer on your current one.

You can run the numbers here: https://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx

I would definitely do the refinance if you can.  As mentioned, check the capital one prequal for an idea of your rate.  I'd suggest using a CU you are a member of for the best rate if possible.  That is what I did and saved an additional $8k in interest when I refinanced in 2019.

[CorySoccer]

@TampaBAY86 Thanks for the info!  Within 2 months I'll actually have the money to pay it off in full.  Is that something I should consider?

[RSX]

if you have the money to pay it off in 2 months, don't refi it - get it paid off and have the title in your hand in case you need it

[CorySoccer]

@RSX That's what I was thinking. Thanks for the advice.

[TampaBAY86]

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@CorySoccer wrote:

@TampaBAY86 Thanks for the info!  Within 2 months I'll actually have the money to pay it off in full.  Is that something I should consider?

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Definitely. As @RSX said, that is the best option if you have it available.