Even a small change, like a 1% difference in your interest rate, could add up to big savings over time, putting potentially thousands of extra dollars back in your pocket over the life of your auto loan.
So, you're going over your budget, trying to find ways to save some cash and put more money back in your wallet. One of the best places to start looking is at your current loan payments, especially your auto loan. These payments are divided into two parts: the principal and the interest. If you're stuck with a high interest rate on your auto loan, most of your payment might be going towards interest, barely making a dent in the actual loan amount.
That's not ideal.
It might be time to consider refinancing your auto loan. By doing this, you could redirect more of your monthly budget towards paying off the principal, which means you'll clear the debt faster and could even lower your monthly payments in the process.
But is it worth getting an auto loan refinance when the rate change isn’t that significant? It's a fair question. The thing is the answer can be different for everyone, but even a small change, like a 1% difference in your interest rate, could actually add up to big savings over time. It all depends on factors like your loan term, the amount you borrowed, and the down payment you initially made. Surprisingly, that small 1% difference could end up putting hundreds, or even thousands, of extra dollars back in your pocket.
So, let’s do some quick math.
Say you purchased a new car for $40,000, and you got a 7-year loan term with an interest rate of 7.99% APR (Annual Percentage Rate). That puts your monthly payment at about $623.25. Over the entire loan period, you're looking at paying $12,352.92 in interest, which works out to roughly $147.06 per month just on interest alone.
Now, say you decide to refinance your auto loan, and you keep the same loan term, but manage to get a lower interest rate of just 6.99%. This puts your monthly payment at about $603.51. You'd be cutting down your monthly interest payments by $21.24 and your overall monthly payment by $19.74. That's a yearly savings of about $254.88 in interest payments and almost $236.88 less per year in your overall payments. Over the life of the loan, you're looking at saving $1,657.90.
See how small changes can add up over time?
To sum it up, even a small 1% interest rate change can actually have a pretty big impact, especially if you have a really high interest rate or a more expensive car. Who really wants to throw away their hard-earned money on unnecessary fees? It's like having a leak in your bank account that you just keep ignoring. Wouldn’t it be smarter to patch up those leaks and put that money towards something more important like paying off debts or making other financial moves?
We think it just makes the most sense to make every dollar count.
Take Your First Steps Towards Auto Refinancing
About Members Choice Credit Union
At Members Choice, we strive to exceed your expectations. We believe in people-helping-people by providing sound financial solutions and resources, as well as sharing our passion for supporting the community. As a full-service financial institution based in Houston, Texas, we have proudly served our area for over 80 years. For more information, visit www.mccu.com.
