<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=489206321732816&amp;ev=PageView&amp;noscript=1">
Back to Tropical Financial Blog

Now is the time to re-finance your high-interest auto loan

If you have had serious credit problems, those TV-advertised car loan rates of as little as 0% are well out of reach. But you can do something about the high rate you are paying now on your vehicle. Tropical Financial Credit Union offers auto refinancing.

The monthly payment of any car loan is based on three factors: the amount borrowed, the interest rate, and the loan term that today can be as long as 96 months. Each affects the total interest you pay, which can be as much as you borrowed!

Your credit rating affects the interest rate. Lenders put borrowers in different categories based on their creditworthiness, from a high of super-prime to a low of deep subprime. If your credit score at Experian is 781 or higher, you can negotiate the best terms. If your score is 500 or lower, expect challenges qualifying for financing.

In between, Experian has categories that descend from prime to nonprime and subprime. Those in the last category have scores between 501 and 600.

People with credit problems pay more to borrow. Today, some lenders are advertising rates of nearly 28%. That’s a steep cost for a vehicle essential for getting to work, the store or a child’s school.

There is hope. TFCU offers refinancing of car loans on better terms. Your rate will depend on a variety of factors, so the following example gives you an idea of what might be saved, not what you should expect from the credit union of any other lender. To be clear, each lender has its own criteria of which the credit score is just one factor.

Let’s say you bought a new car in September 2020. The average price then was about $40,000, according to Edmunds, a car-shopping guide. If your credit was rated subprime or deep subprime, the best financing deal you could find might be 24% for 60 months.

TFCU quick guide to auto refi

With a trade-in or other form of down payment, you borrowed $35,000. Your monthly payment is $1,007. Now is the time to shop around for a better deal: a lower rate with the same final payment date.

Here’s an idea of what could happen: A lender offers to refinance the vehicle at 12% for the remaining 36 months. Your monthly payment drops to $868 a month, which is much easier on your wallet.

More important, you are in line for big savings. With your old loan, you would have paid out more than $25,000 in interest. Because of the new, lower rate, the total interest from the two loans will be just under $20,000.

The numbers look better if you borrowed for 72 months in 2020. Your monthly payment is $921. That drops to $753 at the lower interest rate for the remaining 48 months. The difference is bigger because of the longer term.

More important, instead of paying a total of $31,344 in interest on the old loan, you pay $24,933 for the two loans combined.

Think about it. What could you do with that $8,000 in savings: Pay down other debts? Increase your savings?

There’s no guarantee that a lender will cut your car loan rate in half. Even that figure is sliced only to 18% -- a common credit card rate – you will save thousands of dollars.

In this hypothetical example, you would reduce total interest payments over 60 months by $2,700. The savings over 72 months would be greater, $4,235.

The not-so-secret secret to saving is to start shopping around. To learn about refinancing your high-rate car loan at TFCU, go here.