I have 60-month car loan at 4.75%.

My bank sent me a note saying that I am able to re-finance at 3.25%, to either 60 or 48 months.

I am calculating that it will probably save me about 400-500 dollars in interests over the loan. The drawback is that the loan will be about 7-9 months longer.

After calling my bank to get most of the answers for the questions below here is the answers:

  1. The car equity is 15.5K, the car loan is 11K
  2. The bank will not charge any fee
  3. The bank will allow me to pre-pay the loan without penalty, but the monthly payment will always be the same
  • What is the car worth? Any prepayment penalties? – MrChrister Jan 20 '11 at 7:18
  • Sounds like a no-brainer. – duffbeer703 Jan 21 '11 at 3:09

If you're a bit into the loan, then they're probably hoping that you'll take longer to pay off the loan.

Is there a fee for refinancing the loan? If so, be sure to take that into account.

A smart way to approach it (assuming that the fees are low or zero) would be to continue making the same payment you had been before the refinance. Then you'll end your loan ahead of schedule. (This assumes that there's no prepayment penalty.)

  • Agreed. Another note - most banks will not charge you fees to refinance a loan like this, and if your current bank does, look into re-financing your car loan with another bank. If you lower your interest rate and maintain the same payment, you will save money. – CrimsonX Jan 20 '11 at 17:02

Seems like a good deal to me. You are paying less interest over the lifetime of the loan. And what I would do is take the difference between the new payments and the old, put it into a savings account each month, and when the savings account exceeds the balance of the loan pay it off.

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