1 Q. If I am ½ way through my car loan can I reduce my monthly payment by contacting the bank?
. A. Yes, and no. There are some options you can try, however, not every bank/credit union offers them.
1. Hopefully, you are paying your bills on time (and attending your BankOn classes!) so your credit score should be improved. If this is the case, I absolutely recommend you contacting your bank/credit union and ask them to review your loan. Tell the Loan Officer you would like to lower your payment by qualifying for a lower interest rate. Most financial institutions will agree to review your loan – but not all. If your current lien holder cannot, or won’t review your loan, I recommend calling another bank/cu for a quote. Many people don’t realize you CAN refinance your vehicle somewhere else.
i. Do NOT accept an offer to “cash out” any equity in your vehicle, therefore increasing your loan amount. Vehicles depreciate in value the older they get. Don’t get trapped!
ii. Also, make sure they quote you a payment based on what your existing remaining term is (aka how many months do you have left in the loan). For example, if you have 30 months left of your original 60 month loan, they should quote you an interest rate and payment based on a 30 month loan. Don’t get tricked!
2. Lowering your payment is NOT always beneficial. Some lenders will agree to lower your payment, but in order to do so, they will extend the term of the loan. This isn’t a strategy we recommend, UNLESS you are in crisis mode and need to find ways to decrease your expenses for a bit. After your crisis is over, we recommend increasing your payment back to where it was, so you don’t pay more in interest. Increasing the term always means increasing the amount of interest you pay back.
3. As always, talk to your coach before making any major changes in your financial picture. Also use your debt snowball to see what refinancing your auto loan will do to help you become debt free!
Amy Courtwright, Bank On Partner, Virginia Beach Schools Federal Credit Union