Marketplace Morning Report
Available from Amazon.com

Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.

August 15, 2002

"Refinancing Your Car Loan"

Host: If you've ever heard the name "Alan Greenspan," you know that interest rates have come down a point or two -- or 4.75 -- in the last couple of years. And, that has prompted a lot of homeowners to refinance their mortgages. But personal finance expert Jordan Goodman tells us we shouldn't forget about refinancing what's in the garage.

While everyone is aware that you can refinance your mortgage, not everyone knows that it is also possible to refinance your car loan. Last year 1.1 million car loans worth $23 billion were refinanced, which is still a small fraction of the $1.6 trillion in outstanding car loans.

Years ago, it didn’t make sense to refinance a car loan because cars didn’t cost that much and didn’t last long enough to make it worthwhile. But now, the average car sells for more than $25,000, the average car loan is for 5 years, and the car lasts an average of 13 years, with the average holding period being 7 years for each owner -- so, it makes more sense to refinance. As interest rates have fallen in the last few years, so have car loan rates, so there is enough of a spread to make it worth doing.

Now, you can refinance a car loan you might have taken out for 8 or 9 percent two or 3 years ago to as low as 5.7 percent. In order to get this rate, though, you have to have good credit and repay the loan in a shorter time than the original loan. So, if the original was a 5-year loan, you may refinance to a 3.5- or 4-year loan.

So, if you have a high car loan rate, where do you go to refinance? Not the captive financing arm of the car dealers, like GMAC or Ford Credit, whose job is to sell new cars, not make loans cheaper for consumers. The place to go is the Internet car lenders who specialize in these deals.

These online lenders will typically give you a response in 15 minutes or less as long as you give them everything they need to approve your loan, such as your Social Security Number and the VIN number of the car to be refinanced. Your car has to have held its resale value because they won’t lend on a car that has depreciated below the amount of the loan. But if you have good credit, and a car that is in good shape, it is certainly worth a few minutes at these and other Web sites to see if you can save some money refinancing your car.

For More Financial Tips From Jordan Goodman


Marketplace sponsors
MPR  Minnesota Public Radio  |  Search |  Comments © Copyright & Terms of Use  |  Privacy