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Key takeaways:
- Are your car payments too high? There are different options available to lower them.
- Refinancing your car loan often makes the most sense, but you can also try paying off your loan faster, selling your car, or negotiating with your lender.
- Power Financial Credit Union can help you with flexible refinancing options for your used-car loan.
Whether you had limited financing options at the time of purchase or got a loan through the dealership without looking too closely at the terms, there are solutions.
Let’s go over possible strategies if you bought a used car at a bad rate.
Make Extra Payments
The longer you take to repay a loan, the more time interest has to build up. For instance, if you currently have a car loan at a 15% APR. You initially financed $16,000 over 72 months, which means you’re paying about $338 a month. Note these figures represent the loan principal and interest only.By the end of the loan’s term, you’ll have paid close to $8360 in interest. But if you can find the room in your budget to make extra payments, you can potentially pay a lot less in interest.
Instead of paying $338 a month, you could start making a $200 payment every two weeks. This would save you over $2,000 in interest and have you done with payments in only 56 months.
Refinancing Your Used Car Loan
The best way to lower a car payment is usually to refinance your used car loan. There are two ways to save when refinancing your loan:- You can shop around for a new lender who offers more competitive rates and fees compared to your initial plan.
- You can also take advantage of an improved financial profile to secure a better loan term. This could be a higher credit score or a better job.
- Get a free copy of your credit report. Dispute any mistakes and look for small things you can do to boost your score (like paying off a credit card or getting added as an authorized user on a relative’s card).
- Then, take the time to shop around. Get quotes from different lenders and compare origination fees, interest rates, and loan terms.
- It can be tempting to get a new loan for 60 or 72 months, since this will lower your monthly payments. However, a longer loan term means you’ll be paying more in interest, which could cancel out the lower rate you’re getting.
- Instead, aim for a balance between a reasonable monthly payment and a relatively short term. If possible, aim to pay off this new loan in the same amount of time as what’s left on your initial loan (or even faster).
- Think about refinancing with a credit union. Credit unions usually have lower rates on car loans, and they’ll be more likely to look at a wider range of factors when assessing your financial profile, which can work in your favor.
Consider Selling or Trading In Your Car
If you’ve been making car payments for a while and have been building equity in your vehicle, selling it or trading it in at the dealership can make sense.Typically, you’ll get the best outcome if you do this once your equity gets higher than the remaining balance on the loan. You can pay off what’s left on the loan with the money you get from the sale (or have the dealership pay off the loan when you trade in your vehicle).
Make sure you shop around for a new car loan, compare interest rates, and get pre-approved before getting your next car so you can avoid overpaying on interest this time around.
Bought a Used Car at a Bad Rate? Power Financial Credit Union is Here to Help
You’re not stuck with your current car loan from another lender, and you don’t have to keep overpaying for your car.Power Financial Credit Union offers flexible refinancing options. We offer competitive rates on used car loans, and our representatives are here to make the refinancing process as simple as possible.
Contact us online or stop by one of our South Florida branches to learn more about refinancing a bad car loan.