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 Posted: Thu Apr 17, 2008 6:47 am Subject: How to Negotiate Interest Rates with Creditors |
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I have a question on how to lower the interest rate on a current auto loan I have. First I took a loan out with Citifinancial in May 2006 for $32,500.00 interest rate was 14.99% (payments were $750.00 a month) I paid every month without ever missing a payment, in October 2007, I called and asked if I could get my interest rate lowered and Citifinancial stated no but that I could get a new loan. So I went to Capital One Auto Refinance and applied and got a little lower rate (14.95% and payments went down to $718.16)so now, my balance on a truck that I have been paying on for almost 2years is $29,683.79. That means only $2,816.21 has went to the principal on my loan. Again, I have never missed any payments and I do remember the dealership telling me that companies will lower the interest rate if you make good on payments. I don't know if the refinance was a good thing or not now I am wondering if I would have stuck it out with the first company I probably would have had more paid on the principal. How can I get Capital One to lower this rate? Has anyone ever done this? Any suggestions would be appreciated. Thanks
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kolodin616
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| Posted: Thu Apr 17, 2008 7:41 am Subject: |
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The only way I know how to get that interest rate fixed is through a refinance with another company.
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FYI
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| Posted: Thu Apr 17, 2008 7:43 am Subject: |
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Thanks FYI. I am wondering if I should wait then since I have only been with Capital One for 8 months, it wouldn't look good on my credit report, correct?
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kolodin616
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| Posted: Thu Apr 17, 2008 7:58 am Subject: |
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With the amount of money at stake for this one item, I wouldn't care what a refi might do to my credit report...the bottom line is healthier by $100/month, and consistent payments would continue to build a stronger FICO.
Try looking for a credit union, and refi the vehicle through them. Assuming you got a rate of 8.99% for a term of 5 years, your payments would be around $620/month. Some credit unions have an auto payment plan which would cut the interest rate by .25% (a savings of about $200 over the course of five years).
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Morningstar
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| Posted: Thu Apr 17, 2008 9:09 am Subject: |
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| Quote: | | I do remember the dealership telling me that companies will lower the interest rate if you make good on payments. |
To be bluntly honest, salesman tend to say anything to get you to buy. Maybe he seen you were hesitant about signing at 14.99%, so he probably said that just to get you over the hump.
When an underwriter approves a loan, they are basing the rate on a number of credit factors and the overall risk involved in that extension. I won't say they *never* lower the rate, but it is very rare.
In some cases, it is because legally they cannot. To lower the rate would mean to rewrite the contract. In re-writing the contract, it would change classifications from being an indirect (sales) contract to a direct (consumer) loan -- but if the lender does not have a direct loan license then they cannot hold contracts classified as such. That is why you normally have to refinance it with a company that does have a direct loan license.
Another reason -- you may not know that the car dealer gets a kick-back from the finance company (called a dealer reserve) based on the interest rate they get you to sign at (if the saleman can get you to sign at a higher rate, he makes more commission). For the finance company to arbitrarily lower your rate, would also charge-back the dealer reserve. Not only would it be a conflict of interest on the lender's part, but with an executed dealer agreement on file, the dealer could actually sue the finance company over that chargeback.
I can go on and on, but the fact is you probably won't get any finance company to lower the rate once you've signed the contract. The best you can do is refinance it with another company.
The other thing to keep in mind is that about 1/2 your interest is paid during the first 1/3 of your loan. That means in the beginning, more of your payments go to interest than the principal -- that is true for any loan. If it's a 5-year contract, you really won't see your principal going down by much until the 3rd or 4th year.
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DebtCruncher
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| Posted: Thu Apr 17, 2008 9:27 am Subject: |
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Thanks for the insite, I will look to refinance again.
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kolodin616
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| Posted: Thu Apr 17, 2008 5:42 pm Subject: car loan |
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I have my vehicle financed through Citifinancial. I DO have to say, they can be a higher % than 'normal' if you have bad credit. Well......I've been paying on my loan, for two years and my % rate DID come down a bit.
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sdchargers_63
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| Posted: Fri Apr 18, 2008 10:44 am Subject: |
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thanks sdchargers. I am just going to continue with capital one and see if it starts to go towards the principal.
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kolodin616
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