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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Auto refinancing
Dear Dr. Don,
How can I refinance my car loan? I currently
have a loan with a credit company, but was wondering where I would
start to get a better rate.
Matthew Motorsports
Dear Matthew,
The first step is to review your current loan documents.
You're looking to make sure that there aren't any prepayment penalties,
and that you don't have a loan where interest is calculated based
on "The Rule of 78s."
With a loan using this rule, the lender typically
collects three-quarters of a loan's interest in the first half of
the loan term. Bankrate can help you determine
how the interest on your loan is computed. The good news is
that most auto loans today don't use this rule.
Refinancing can also mean moving from new car rates
to a higher interest rate for used cars. If you're only a few months
in on a loan the lender may give you the new-car rate. Otherwise
you're going to pay about half a percent more for used-car financing.
You can shop
rates on Bankrate. Financial institutions can and will offer
more variety than the categories tracked on Bankrate, but the shop-rates
feature gives you an idea which lenders are competitive in your
market.
Loan and title fees can eat into your expected savings.
Ask the lender for a breakdown of these charges when shopping for
your loan.
Try using Bankrate's Should
you refinance your mortgage? calculator to estimate the savings
when you refinance.
Find out your payoff balance by contacting your lender.
Enter the current and new loan terms. Then on the cost side enter
0 for the number of points, input any loan and title fees and put
zeros in the other cost columns. The calculator will show your monthly
savings and the number of months that it will take to earn back
your loan costs.
You can also use Bankrate's
auto loan calculator to compare the new payment to your current
payment.
-- Posted: April 10, 2002
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