My current auto loan APR is 6.29% with a monthly payment of $387.33. I was looking to refinance for a lower APR and monthly payment but Navy Fed just offered me a lowered payment of 308.71. Should I accept this new loan refinance?
Current remaining term: 45 months
New loan term: 57 months
Accept lower payment, but same APR?
byu/Illustrious_Emu_8901 inpersonalfinance
Posted by Illustrious_Emu_8901
9 Comments
Whats the remaining term on your loan? What’s the term and rate of the refinance?
Does the amount of years to pay off reset ?
They just lowered your payment? New loan or term? Or are they truly lowering the rate without extending the term?
Have you been making regular payments and adding additional principal payments?
At the same APR, but lower payment — likely just means they reamortized the loan.
Nothing wrong with it, but sometimes you can get your current bank to do a recast. More common on mortgages, but that might save you the refi fees.
Why are you not saying the change in the interest rate or length of term?
Sounds like a recast to me, recalculating the amortization schedule (monthly payments) while keeping all other loan terms the same. This is only possible if you’ve made substantial excess principle payment(s) (curtailment). The curtailment saves you money on interest, the recast spreads out the rest of the repayment.
A refinance with lower payments with same APR means you’re paying off the debt over a longer period of time. That means you are paying more in interest.
From a financially beneficial standpoint, always seek the option that eliminates the debt at the least total cost to you, vs. the greatest return for the lender.
That’s not a refinance, it’s a recast.
What’s the impetus on lowering your monthly payment?
Personally I wouldn’t. Unless your having some kinda issue making the payments and the ~$80 might make a difference between you being able to make the payment and you go broke. But extending out the loan is usually not a good idea. I mean there’s arguments for keeping the payment low and aggressively paying it off. But the point is the intention shouldn’t be to keep the loan around so long it moved into your spare bedroom.
I would only consider accepting a new loan offer if the end result saves me from bankruptcy or helps me in some way to pay off my debt faster. Or something like that.