Time to refinance your car loan — and save thousands in interest

(May 2010) Refinancing is one of the best-kept secrets of the auto industry, according to Edmunds.com. Many people don't realize how easy it is to do. Plus, they don't realize that there are no prepayment penalties for canceling your existing loan and no fees getting a new one at a lower interest rate. Exactly how much money can you save by taking an hour or two to get a new car loan?

Say you bought a new car six months ago and there were a few dings on your credit, so the dealer told you that your auto loan would be 11 percent on a five-year loan for a $30,000 car. Now let's say that you "refi" (as the cool people say) at the existing rate of about 4 percent. Get ready to have your socks blown off when you read how much lower your payment will be.

On a $30,000 car, with the tax and license fees, the beginning balance is about $33,375 and your monthly payment is $725. Refinanced at 4 percent your payment will drop to $614 — a savings of $111 a month, or $5,772 over the remaining 52 months of the loan. That's huge!

At this point you might be pretty jazzed about refinancing your loan. So here are a few steps to take:

Find your sales contract or the most recent payment stub from your loan company.Verify what interest rate you are paying. If it is anything over 6 percent, refinancing might be the way to go. If it is over 8 percent, you should definitely refinance.If it is over 10 percent, you should drop everything and do it right now.

Your next stop should be
Bankrate.com, which pulls together interest rate quotes from different lenders. Or you can go directly to Capitaloneautofinance.com, which also offers independent financing for new and used cars.

If you had spotty credit, but it has improved recently, you are a prime candidate for refinancing. Or you might just want to take advantage of these historic low rates. It only takes a little time to save a lot of money. For more information read Refinancing Your Car Loan and learn the best-kept secret in the auto industry.There's only one drawback to all this -- the dealer will hate you for jettisoning your old loan.

By Philip Reed
Posted May 24, 2010