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.
1. Sidenotes:
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
