NEW YORK (MainStreet) – A thorny aspect to owning a car if you have bad credit is the inability to refinance your auto loans into lower payments.
Now, one company may be offering those consumers a break.
Auto loans, which historically trade in the 6%, 7% or even 8% interest range (or higher), are now offering rates around 4.5%. According to the BankingMyWay Auto Loan Interest Calculator, the actual auto loan interest rate this week is 4.57%, down from 4.7% last week.
That’s a big difference to vehicle owners, especially ones who bought a new car or truck a few years ago when interest rates were much higher than they are today. In fact, CarFinance.com says that auto owners who purchased a vehicle in the fourth quarter of 2008 can save about $200 or more (given a monthly car payment of $600 per month) if they take advantage of today’s lower rates.
The Vine, Calif.-based company says consumers, still on their heels over a five-year economic slide, want to keep their current cars or trucks longer, and low rates give them the opportunity to do just that, along with more cash in their pocket.
"Not only are consumers holding onto their vehicles for longer than ever, most of those car owners purchased their vehicles just a few years ago when the economy was soaring and interest rates were higher," said CarFinance.com CEO Jim Landy in a statement.
Landy’s firm says that there are about 36% of consumers suffering from bad credit, and that it hopes to save consumers hundreds per month, but in a no-hassle way.
Is that even possible?
CarFinance.com thinks so, although it doesn’t reveal its track record of rewarding low-credit consumers with better refinancing deals. Fair or unfair, the odds of consumers with low credit paying back their loans is lower than for consumers with high credit. That is, after all, why credit scores exist in the first place.
But CarFinance.com is standing its ground. The firm says that if you have a FICO credit score between 550 and 675 (pretty low by credit agency standards) you’re eligible for one of their refinancing deals. You’ll also need a vehicle 6 years old or newer, and with no more than 75,000 miles on it.
Consumers should be careful with any refinancing deal. If refinancing means adding more monthly payments to your loan, even at a better interest rate, you may be paying less money every month, but more money during the course of the loan.
So before you sign on the old dotted line, review all of the loan paperwork and have a financial adviser or your bank’s customer service department review the terms of the refinancing deal.
In that regard, “buying” a new auto loan is like buying a new car – you have to kick a lot of tires first.
Which vehicles are the least problematic? Find out in MainStreet’s look at the eight most dependable cars of 2012.