Many of us have fallen prey to the pressures of a conglomerate car retailer, including myself. In 2011, I walked into a Toyota (TM) dealership with the sensible goal of simply checking out the merchandise. My lease was drawing to a close, and I wanted to see what my options were. Instead, I got caught up in the allure of shiny metal and, to my surprise, ended up leaving the lot with a new car.
Two years later — after the excitement of new car keys clinking in my purse faded, along with that new car smell — I realized that perhaps I hadn’t made the best financial decision. I admitted my error and dealt with the mixture of guilt and frustration. Then I got motivated.
The first thing I did was consult a financial expert who specialized in car loans. I soon discovered that not only was I upside-down on my outrageous seven-year loan (yes, seven), I was going to overpay by thousands of dollars if I kept it. Knife to the wallet.
An Extreme Situation
Of course, paying extra in interest is part of the deal when you don’t pay cash for a car. My situation was slightly more extreme, though, due to the length of my loan and my relatively high interest rate, which was non-negotiable at the time, thanks to Scion’s funky set of rules.
So what’s a gal to do when she feels the sharp claws of a corporation digging into her sensitive bank account? She does a bunch of research and evaluates all her options, that’s what.
I started by Googling “car refinancing.” Instantly, a bounty of bank’s promising super-low rates populated my browser window. I began by checking out my own bank, JPMorgan Chase (JPM), and quickly learned that the fractional difference between the interest rate it offered and what I already was paying meant it wouldn’t be worth the trouble of refinancing. Then, I followed the recommendation of my financial adviser and moved on to local credit unions, which offered the lowest rates across the board. Seeing those low rates felt sort of like Christmas.
Refinancing requires much paperwork and correspondence. After the monthlong process, I felt like I was basically BFFs with my loan officer. I even kind of missed those weekly emails and calls when it was all over. What I did not miss, though, was the too-high car payment and the overwhelming sense of fiscal doom I associated with it.
The 2.49 Percent Solution
By switching from a Toyota Financial Services loan to a car loan with Tempe Schools Credit Union (now Landings Credit Union), I reduced my interest rate from 5.95 percent to 2.49 percent. I didn’t add extra years onto my car loan payments, which many people do to reduce their monthly payment. Instead, my loan concludes at the same time it would have otherwise. My monthly payment went from $341 to $315, savings $26 a month or $312 a year. By reducing my interest rate and not adding more years to my loan, I saved myself nearly two grand.
Let’s do some additional (and painful for me) math. What would my total savings look like if I’d financed with the credit union to begin with? At 2.49 percent versus the 5.95 percent, we’re looking at a difference of $5,300 in finance charges versus $2,100, a savings of $3,200.