I Refinanced My Car Loan, Dropped 1%, And Still Pay $4 More A Month!

by Hank Coleman

I refinanced my car loan and love it!Recently my bank, USAA, who I absolutely love doing business with offered me a deal to refinance my car with a new car loan at a reduced interest rate. So, of course, I pounced on it. I would be lowering my interest rate by almost 1% and moving another loan back to my favorite bank.

But, when I called, I was a little shocked at first when my monthly payment actually rose by $4 per month instead dropping. I was expecting my car payments to drop since I was reducing my annual interest rate on the car loan from 4.38% to 3.59%. But, I still took the offer and refinanced my car loan. And, here’s why…

I Cut Off Two Loan Payments When I Refinanced My Car

One of the main reasons that I actually did not lower my monthly payment is because I cut off two of my loan payments. I currently have 38 more payments to make on my car with the car manufacturer’s lending company. When I applied for my new refinanced car loan, I only asked for a 36 month note.

Slicing those two months off of my car payment will save me hundreds of dollars. So, instead of receiving a monthly discount because of the refinance, I’m receiving a lump sum type of savings by reducing the total number of payments I have to make on my car loan.

Brought All My Accounts Under One Roof

I love my bank. How many people can truly say that? Not many, no matter what popular commercials say. I have banked with USAA, a financial institution that handles insurance, banking, investments, and other financial services predominately for members of the military, veterans, and their families. I have banked with USAA for over 13 years now, and it has been an incredible experience.

One of the biggest incentives to refinance my car loan with my bank, besides the reduced interest rate, is that it brings this loan back to a financial institution that I know, love, and trust. I’m not a big fan of using a car manufacturer’s financing arm, but at the time when my wife and I bought our car, they had the best interest rate on new cars.

Now, I’m very glad that I can bring my loan back to my bank where I can see it every day all on one computer screen when I log into the bank’s homepage. I have over 12 different financial products with USAA and love it! Check out J Money from my favorite personal finance blog, Budgets Are Sexy, who talks about how he loves having over 16 different accounts with USAA!

Stretching Out The Loan When I Refinanced My Car Wouldn’t Save Money

I have seen many of my coworkers take out similar car loans to refinance their notes, but one of the biggest mistakes that people make is taking out a longer term than what you currently have. For example, since my current car loan has only 38 more payments left to make, it would be foolish to refinance for a term longer than those 38 months.

You can stretch out your loan for another four years or more and greatly reduce your total monthly car payments, but you will wind up paying a far greater total amount for your loan as interest builds up through that extra year. Plus, cars depreciate severely in value. Adding one additional year on your car loan that is not needed will only hurt your ability to resell your car after your loan is paid off.

You could find yourself severely upside down on your car loan should you total your car before it is paid off because you are paying less on the loan every month while it continues to depreciate.

There is more to refinancing car and other loans than simply saving money on your monthly payment. I found this out when I refinanced my car loan. While lowering your interest rate is very important, it is also imperative to continue with the same length of your current loan when you refinance to a new one. Saving money every month does not have to be your goal when refinancing your car loan. There are other ways to save your money.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and is currently pursuing his Certified Financial Planner credentials. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 535 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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