Author Topic: Should I refinance with a terrible interest rate or stay with a horrendous one?  (Read 2142 times)

JLE1990

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So I purchased a vehicle before I started reading MMM last June. I'm in the process of paying off debts (getting close to 50% savings/debt reduction rate) and I am looking to pay off the vehicle as quickly as possible. I currently have a 29.99% interest rate on it and it's possible to refinance that too 15% or possibly 12% if I wait another month. Either way I am planning to make 1000 payments and get it finished in 7mon.

My question is it worth it to refinance the car and lower my abysmal credit(600) even lower? Apparently it takes six months to even recoup the score losses according to the banker. However, this will be the first positive step I'll be taking with credit (current loan is through a dealer so no boost from payments) as oppose to fixing things from when I was younger and a lot dumber(mostly issues with student loans).

Mikila

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You can use a calculator like this: https://www.calcxml.com/calculators/extra-payment-calculator to figure the value of your extra payments.

Here is a "Should I refinance?" Calculator.

You do not say what your balance is, but simple logic tells you that you could cut your interest paid in half by reducing the rate from 30 to 15%. 

Are there fees to refinance?

Rosy

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So you currently have a car pmt of $1K mo until Oct 2018?
At 29.99%, which has to be the max loan percentage allowed legally I would guess.

This is clearly a straightforward math question and I'm terrible at math, but my calculator tells me you would save 17.99% in interest for 6 mo if you can refinance next month at 12%.
So yes, do it - your hair is on fire with a debt emergency, so you do whatever it takes to get that monkey off your back. If it will save you money - do it.

Be sure you know what costs are involved for re-financing and make sure you look up your credit report to see if that dealer/bank/loan co. is actually reporting your loan and your on-time payments - otherwise it may all be for naught (if you are trying to repair your credit).

However, in order for us to give you truly useful advice - you might give us more pertinent background information. Is your loan for a $5K car or more? Is having a car truly essential?

If you follow Dave Ramsey's snowball debt method then I'd think this one has to be up top on the list for the highest interest rate - to be paid off first.

LWYRUP

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Do whatever it takes to squash that high interest debt and ignore the credit score.  There are various strategies you can use to fix that later AFTER you've righted the ship. 

Telecaster

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My question is it worth it to refinance the car and lower my abysmal credit(600) even lower? Apparently it takes six months to even recoup the score losses according to the banker. However, this will be the first positive step I'll be taking with credit (current loan is through a dealer so no boost from payments) as oppose to fixing things from when I was younger and a lot dumber(mostly issues with student loans).

Yes, refi.  The credit hit isn't that bad, and six months is nothing.

Debt is a monster that must be attacked with every weapon you have.  Lower the interest rate and snowball that thing. 

Lady SA

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The credit score shouldn't even be a consideration (unless you are buying a house in the next 6 months, which doesn't seem likely). Definitely refinance.

Your credit score only matters if you are planning on making a major purchase soon. Otherwise, you should focus on optimizing the interest you are paying.

JLE1990

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Ok sounds good. I'll try and refi asap. Thanks for the advice! The current loan amount is 6400$ and that calculator will be helpful in figuring out the exact numbers.
I am hoping to buy a house once I get all the interest generating debt removed(18k)! That will probably take a couple years.

Dave1442397

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Ok sounds good. I'll try and refi asap. Thanks for the advice! The current loan amount is 6400$ and that calculator will be helpful in figuring out the exact numbers.
I am hoping to buy a house once I get all the interest generating debt removed(18k)! That will probably take a couple years.

See if you can work with a credit union on the refi. PenFed is showing 2.99% for a 36-month refi on 2013-2018 cars.

https://online.penfed.org/PenFedOnline/Forms/ProductsAndRates/Rates.aspx

slappy

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Ok sounds good. I'll try and refi asap. Thanks for the advice! The current loan amount is 6400$ and that calculator will be helpful in figuring out the exact numbers.
I am hoping to buy a house once I get all the interest generating debt removed(18k)! That will probably take a couple years.

See if you can work with a credit union on the refi. PenFed is showing 2.99% for a 36-month refi on 2013-2018 cars.

https://online.penfed.org/PenFedOnline/Forms/ProductsAndRates/Rates.aspx

That rate is likely for top tier credit, which OP does not have. 600 is too low of a score for even most credit unions to work with.

slappy

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Also, the question of whether or not it is worth it depends on what fees exist to do the refinance. If you are planning to pay if off quickly, you need to calculate how much interest you will pay over the next 7 months and compare it to the cost of fees required to refinance. Generally, I don't think there are fees, other than a retitle fee, but I'm not sure how it works with places that cater to low credit scores.

Proud Foot

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A refinance would help you out with interest but if you are planning on paying it off in 7 months the amount saved is not as significant as you would think. Refinancing to 12.99% would save you around 375 in interest costs over the 7 months assuming no loan costs and not counting any costs to register your title with the new lien.  If you list your debts by interest rate from largest to smallest and a refinance would move it down the list it would make a lot of sense to do the refi, particularly if you can lower your monthly payment and can snowball onto the highest rate debts.

ShoulderThingThatGoesUp

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Are you underwater on this car? Can you sell it and get something cheaper?