Ideas for Paying Off Auto Loans Early – Avoiding Refinance

January 31st, 2010 by admin

If you are interested in reducing your debt and paying off a current auto loan, refinancing may not be the best option. This short article explains a few ideas for reducing your auto loan and how to best do it.

Chances are, if you’ve bought a car with bad credit, you’ve probably got a high interest rate. That’s the norm. People that have lower credit scores most always pay interest rates 4% to 10% more than borrowers that have high ratings. Some places offer better rates, but it’s just common to pay more.

If you’re one of those consumers, then paying off your loan early will save you a considerable amount of money. Many bad credit loans are front loaded, or so they seem, as the majority of the first half of your payments goes primarily to paying interest. So it’s a wise notion to avoid those extra finance charges.

Interestingly enough, many people don’t ever make any attempt to pay more than their minimum monthly payment. This drags the loan out and thousands of wasted dollars are paid in finance charges that could have been avoided with just a little bit of extra effort.

By using an amoritization chart, you can see how much you’re paying monthly in interest and principle. By simply paying twice the principle amount each month, you can cut your loan repayment time in half, without much extra out of pocket expense.

For example, a 48 month car loan that is say, $300.00 per month, will have 75% of that payment going to interest during the first year. (This is an estimation). So, if the chart shows that you are paying $225.00 per month in interest, then only $75.00 per month is going to principle.

Simply by paying an additional $75.00 per month, for a total of $375.00, you are able to effectively make double payments. Over the course of your loan, this makes a big difference in cutting down the length of your loan and can reduce your loan term to 24 months (approximately).

In contrast, refinancing your loan will only extend the length of time that you have to repay it, and even with a lower interest rate, the longer length of time may or may not reduce the amount that you pay in finance charges.

In my opinion, it is a wise idea to avoid refinance on an auto loan and to simply add that extra principle amount each month to reduce your loan term.

Also, you may find that instead of approaching another company for refi, you can simply contact the company that your current loan is with and ask them for reconsideration. You may in fact be shocked, that simply by making a simple phone call to your creditors, that your interest rates can be instantly reduced, thus lowering your monthly payments.

However, if this happens for you and you have less that you are obligated to monthly, then take those extra funds and apply them to the principle as described above.

I’ve used these principles and they have worked out very well for me. I’ve been able to reduce a car loan that was financed at 16% (bad credit), down to 11% interest in 10 minutes with a simple phone call. I simply explained that I was having a hard time paying my bills and asked if there was anything that they could do. I was put on hold for about 2 minutes, and when the customer service representative came back on the line, I was informed of my new lower interest rate and that my payments would be $80.00 per month less.

You can imagine the excitement that I experienced. I then went on to contact a few credit card companies. I did not get a positive response from all of my creditors, but I did manage to reduce my total monthly bills by $232.00 by making a few simple phone calls.

See if it works for you. The only thing that they can tell you is yes, or no. There’s no reason to be intimidated about calling your creditors and in fact, they’ll probably see you in a positive light as you took the initiative to make a responsible move.

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