Dear Dr. Don,
We have an auto loan with CitiFinancial at 16.99 percent. The loan is in both my husband's and my name. I called CitiFinancial to see if there is something that can be done about this.
I was told that I have a simple interest loan and it has to stay like this until the end of the loan, unless I pay it off early.
We pay nearly $1,600 in interest every year and I just think this is ridiculous. Is there anywhere else I can get this auto loan refinanced at a better rate?
We took out the loan in June 2007. We always make our payment at least five days early every month, but I am not willing to continue paying this type of interest if there is another way around it.
CitiFinancial told me I would have to reapply at CitiFinancial to refinance the loan. No thank you. Any help you could give me with this would be appreciated.
-- Linda Loanrate
A year's worth of on-time payments on your car loan, combined with a solid payment history on your other debts, should have you in a position where you can refinance your car at a much lower interest rate than 16.99 percent.
I think it's worth your while to get a copy of your credit score from at least one of the three major consumer reporting agencies: Equifax, Experian or TransUnion.
You should qualify for six to nine months of free credit reporting from TransUnion. That monitoring includes free access to your credit score. The Bankrate feature "TransUnion settlement offers free credit monitoring" explains the details.
Make sure there's no prepayment penalty on the loan. It's pretty unusual for a car loan to have a prepayment penalty. But the higher the interest rate on the loan, the more likely it is that the terms of the loan are just as bad as the rate.
Review your loan documents or check with your lender. It's also important that the interest expense wasn't calculated based on the Rule of 78s. Again, it's pretty unusual, but check it out before you refinance. The Bankrate feature "Steer clear of the perilous 'Rule of 78s'" explains how this method of calculating interest expense acts as a prepayment penalty.
If it looks like clear sailing on your credit and existing loan terms, you're ready to start shopping for that new loan. You can shop auto refinancing rates on Bankrate using the site's Auto loan rate search. Check out your local credit union, too.
The Credit Union Locator will let you determine if you're eligible to join a credit union in your area. You can do some comparison shopping, but keep it in a fairly tight time period (two to four weeks) because a lengthy search will negatively impact your credit score.