# Refinancing Car Loan



## jmbagsy (Mar 14, 2017)

After being in this forum for a short time, I became much more aware of my expenditures and did some reading of all deals I signed for without understanding fully what's in it. Here is one staggering I found.

So I have my car loan financed under TD and is paying for it bi-weekly for 259$. I still have a standing balance of 22k for it. Here's the deal when I started financing it thru TD.

Original Amount = 38k
issue Date = Oct. 2014.
Term = 60 months
Interest Rate = *6.24%* (Im assuming this would be too high)


Any suggestions on how I could do refinancing so I could get a better interest rate option for this one?


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## chantl01 (Mar 17, 2011)

Unless you have access to a line of credit at a lower interest rate (do you have equity in your home?) there is unlikely to be much you can do to get rid of this car loan. What you can do is prioritize paying it off as quickly as possible. Most people don't realize that although you may have a payment rate of $259 bi-weekly, since it's a loan through a bank you can throw lump sums at the loan whenever you like to bring down the principle and reduce the amount of interest you will pay over the life of the loan.


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## jmbagsy (Mar 14, 2017)

chantl01 said:


> Unless you have access to a line of credit at a lower interest rate (do you have equity in your home?) there is unlikely to be much you can do to get rid of this car loan. What you can do is prioritize paying it off as quickly as possible. Most people don't realize that although you may have a payment rate of $259 bi-weekly, since it's a loan through a bank you can throw lump sums at the loan whenever you like to bring down the principle and reduce the amount of interest you will pay over the life of the loan.


I'm still working on getting a house, the good folks here suggest I should get rid of this car loan first thus the post. I thought that 6.24% is crazy high that's why Im wondering if refinancing is an option to lower it down then do lump sum payments as you suggested as well.


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## CalgaryPotato (Mar 7, 2015)

Why did you go through the bank to get the loan? The dealerships have so many offers for free or low cost financing. Even if they gave you cash back instead, I can't imagine it making up for 6%.

Anyway, interest rates are the ultimate catch 22. If you had a house with equity in it, you could get one for half the price. But since you don't you get the more expensive rate. Those who have money have easier access to more money.


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## mark0f0 (Oct 1, 2016)

Basically cars are worth next to nothing as collateral. By the time they get repossessed, they're usually worth far less than even 'book' as their owners typically abuse them/make them dirty/don't maintain them. 

So in essence, what you have is effectively an unsecured loan. 

What you could do is offer the bank higher-quality security, and they should be willing to refinance the loan for less. If you have investments, for instance, you can pledge them to the bank. If you have a house, you could offer the bank a mortgage to secure a loan to refinance such.


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## carverman (Nov 8, 2010)

mark0f0 said:


> Basically cars are worth next to nothing as collateral. By the time they get repossessed, they're usually worth far less than even 'book' as their owners typically abuse them/make them dirty/don't maintain them.
> 
> So in essence, what you have is effectively an unsecured loan.
> 
> What you could do is offer the bank higher-quality security, and they should be willing to refinance the loan for less. If you have investments, for instance, you can pledge them to the bank. If you have a house, you could offer the bank a mortgage to secure a loan to refinance such.


That also depends on how much equity is available from the house and any other debts such as credit cards and your credit score.


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## carverman (Nov 8, 2010)

jmbagsy said:


> I'm still working on getting a house, the good folks here suggest I should get rid of this car loan first thus the post. I thought that 6.24% is crazy high that's why Im wondering if refinancing is an option to lower it down then do lump sum payments as you suggested as well.


I doubt you will be successful in refinancing this car loan, unless you can pay down a substantial amount of the loan to TD. I presume you don't have much collateral to offer (bonds, GICs etc) and since you don't yet own property...its going to be a hard sell.

You have to ask yourself why you got sucked in on a 6.24% car loan (over 6 years (73 months)) when there are so many other deals from dealers that are very low interest or even 0% interest. 

You are about halfway through the loan period now (Oct 2014 $38k to March 31, 2017)..and you pay back $6734 of payments over 26 biweekly payments per year. But you still have 2017,2018 and 2019
to go. 

At $518 per month ($1154 (2014) + $6734 (2015) +$6734 (2016)+$1154 (2017(, you have paid back $16,576 of that car loan, and you still have $21,424 to pay.

Right now, you car is 3 model years old, and may be worth only $20k (or less) wholesale. Not a good deal. I would suggest to keep going and be smarter the next time when you buy are car. 

Take a calculator with you and don't sign any purchase forms until you have had 24 hrs to think it over.


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## Ag Driver (Dec 13, 2012)

Deleted


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## Beaver101 (Nov 14, 2011)

carverman said:


> I doubt you will be successful in refinancing this car loan, unless you can pay down a substantial amount of the loan to TD. I presume you don't have much collateral to offer (bonds, GICs etc) and since you don't yet own property...its going to be a hard sell.
> *
> You have to ask yourself why you got sucked in on a 6.24% car loan (over 6 years (73 months)) when there are so many other deals from dealers that are very low interest or even 0% interest.
> *
> ...


 ... I think it's already a lesson learned by now. And next time, he would be armed with more than a calculator.

Not to open a can of worms or make things more complex for the OP, I would question about the legality of that financing interest rate at 6.24% ... and the plunging re-sale value of the car (what kind is it?) even it's 3 years old. 

Just throwing this idea out - would the OP and/or wife's parents be able to help out?


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## carverman (Nov 8, 2010)

Beaver101 said:


> .
> Not to open a can of worms or make things more complex for the OP, I would *question about the legality of that financing interest rate at 6.24% *... and the plunging re-sale value of the car (what kind is it?) even it's 3 years old.


Making some assumptions here: 1) he bought the car at a dealer that had a "sweetheart financing deal/kickbacks" from TD, not sure
if its the TD bank or TD Finance, which are a bunch of shysters.
2) he put NO money down, they gave them their normal finance rate of 6.24% 
Since he signed a valid contract, it's going to be tough to refinance without paying off the loan entirely.
if he defaults on the loan, they will go after him for repossession charges and any balance from their
resale of the vehicle (probably back to the same dealer at WHOLESALE.


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## Beaver101 (Nov 14, 2011)

carverman said:


> Making some assumptions here: 1) he bought the car at a dealer that had a "sweetheart financing deal/kickbacks" from TD, not sure
> if its the TD bank or TD Finance, which are a bunch of shysters.
> 2) he put NO money down, they gave them their normal finance rate of 6.24%
> Since he signed a valid contract, it's going to be tough to refinance without paying off the loan entirely.
> ...


 ... I missed the part that the financing came from the TD bank, then I would really question if that *6.24*% rate is considered "normal"? including the kickbacks built in ...


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## jmbagsy (Mar 14, 2017)

CalgaryPotato said:


> Why did you go through the bank to get the loan? The dealerships have so many offers for free or low cost financing. Even if they gave you cash back instead, I can't imagine it making up for 6%.


It was the accountant at the dealership who do the financing that time. 



CalgaryPotato said:


> Anyway, interest rates are the ultimate catch 22. If you had a house with equity in it, you could get one for half the price. But since you don't you get the more expensive rate. Those who have money have easier access to more money.


Would it be possible to put the car in my parents' name since they have equity on the house already to lower the interest rate?


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## jmbagsy (Mar 14, 2017)

mark0f0 said:


> Basically cars are worth next to nothing as collateral. By the time they get repossessed, they're usually worth far less than even 'book' as their owners typically abuse them/make them dirty/don't maintain them.
> 
> So in essence, what you have is effectively an unsecured loan.


Hmmm... when we bought the care it was named under my parents since i dont have the qualifications that time then a year after we requested to have it under my name and the way they did it was I bought the car from my parents. Maybe that is why. 



mark0f0 said:


> What you could do is offer the bank higher-quality security, and they should be willing to refinance the loan for less. If you have investments, for instance, you can pledge them to the bank. If you have a house, you could offer the bank a mortgage to secure a loan to refinance such.


I have an RRSP worth 10k +. Can i use that as a pledge?


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## jmbagsy (Mar 14, 2017)

carverman said:


> I doubt you will be successful in refinancing this car loan, unless you can pay down a substantial amount of the loan to TD. I presume you don't have much collateral to offer (bonds, GICs etc) and since you don't yet own property...its going to be a hard sell.


Im planning to make a big lump sum as you guys suggested... probably 7k. Would that be enough to consider refinancing?



carverman said:


> You have to ask yourself why you got sucked in on a 6.24% car loan (over 6 years (73 months)) when there are so many other deals from dealers that are very low interest or even 0% interest.


Admittedly, this I learned the hard way. Gotta pick myself up and move on. I am still very optimistic now that I have you all good folks here that I can ask for advice anytime (and for free  ) I have to deal with financial matters.



carverman said:


> You are about halfway through the loan period now (Oct 2014 $38k to March 31, 2017)..and you pay back $6734 of payments over 26 biweekly payments per year. But you still have 2017,2018 and 2019
> to go.
> 
> At $518 per month ($1154 (2014) + $6734 (2015) +$6734 (2016)+$1154 (2017(, you have paid back $16,576 of that car loan, and you still have $21,424 to pay.
> ...


Wow, you are totally right with that calculation. I will definitely be smarter the next time. Thanks for taking time to go through the math. These people I dealt with are savage, how can they do this me? But I take most of the blame to myself for being so ignorant. I know they are only trying to make a living, but still, I can't imagine myself working at the expense of other people's ignorance.


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## jmbagsy (Mar 14, 2017)

Ag Driver said:


> I ditched my auto loan for a personal loan secured by cash and this slashed the rate to less than half of the original.


interesting. How do you do it? Do you mind walking me through this in a more specific way. This can be an option for me. Im trying to find a way (with the help of you guys here) to pay off my car loan faster aside from making lump sum payments.



Ag Driver said:


> Whom ever it was, they gave you great advice to clean up all debt before diving into the house purchase. You will want to keep those expenses down....way down when diving into a house purchase. Lots of surprises and gotchas to come your way!


Yes, totally right. Lots of good and smart people here who are very helpful. Finding this forum for me (ignorant in financial matters) is a GEM.


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## jmbagsy (Mar 14, 2017)

Beaver101 said:


> ... I think it's already a lesson learned by now. And next time, he would be armed with more than a calculator.


Lesson learned definitely. Hard, but I'm more than glad I am learning these things now.



Beaver101 said:


> Not to open a can of worms or make things more complex for the OP, I would question about the legality of that financing interest rate at 6.24% ... and the plunging re-sale value of the car (what kind is it?) even it's 3 years old.
> 
> Just throwing this idea out - would the OP and/or wife's parents be able to help out?


It is a 2013 RAV 4 XLE AWD. I have a brother whom I can ask for help but still not sure.


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## jmbagsy (Mar 14, 2017)

carverman said:


> Making some assumptions here: 1) he bought the car at a dealer that had a "sweetheart financing deal/kickbacks" from TD, not sure
> if its the TD bank or TD Finance, which are a bunch of shysters.


2) he put NO money down, they gave them their normal finance rate of 6.24%[/QUOTE]

I'd say most probably your assumptions here are right.



carverman said:


> Since he signed a valid contract, it's going to be tough to refinance without paying off the loan entirely.


if he defaults on the loan, they will go after him for repossession charges and any balance from their
resale of the vehicle (probably back to the same dealer at WHOLESALE.[/QUOTE]

What do you mean by "he defaults on the loan"?


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## carverman (Nov 8, 2010)

jmbagsy said:


> Im planning to make a big lump sum as you guys suggested... probably 7k. Would that be enough to consider refinancing?


you can approach them to see what they say, but if you had it financed, even if it was in your parents name at the time..THEY ARE
STILL ON THE HOO, being the original co-signers for the loan. 

More than likely, you and they as co-signers, signed a fiance document where one of the many clauses mentions *CHATTEL MORTGAGE*.

That means,if you (or they) default on the loan payments, they can not only repossess the car, but get a court order to seize and sell items of any value from their home and possibly yours, dependiing on whether you signed the original TD finance document. you or your parents would have a copy of it either from the dealer or sent by TD Finance to you.

Read thoroughly ( at least now), and find out what they expect your obligations to be. 
my guess is that they will take any extra amount offered as one time payment to reduce the balance owing, but you would still be obligated to pay them under the original signed agreement. 



> Admittedly, this I learned the hard way. Gotta pick myself up and move on. I am still very optimistic now that I have you all good folks here that I can ask for advice anytime (and for free  ) I have to deal with financial matters.
> 
> Wow, you are totally right with that calculation. I will definitely be smarter the next time. Thanks for taking time to go through the math. These people I dealt with are savage, how can they do this me? But I take most of the blame to myself for being so ignorant. I know they are only trying to make a living, but still, I can't imagine myself working at the expense of other people's ignorance.


Chattel Mortgage


> A* transfer of some legal or equitable right in Personal Property *as s*ecurity for the payment of money or performance of some other act*. Chattel mortgages have generally been superseded by other types of Secured Transactions under the Uniform Commercial Code (UCC), a body of law adopted by the states that governs commercial transactions.
> 
> The rights of the lender who gives a chattel mortgage are valid only against others who know or should know of the lender's security interest in the property. Since the borrower possesses the property, others cannot realize that a chattel mortgage exists without notice. Each state, therefore, has developed a system for recording instruments showing the existence of chattel mortgages for particular items of property; these records are usually located in the county clerk's office.
> If a recording system is in existence a buyer is presumed to know about a mortgage. Once, therefore, the mortgage is properly recorded, the buyer obtains the debt in addition to the property.


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## Mukhang pera (Feb 26, 2016)

It may be that carver is right, the car loan is secured by a chattel mortgage, and the parents are still on the hook notwithstanding the transfer of title. If so, perhaps the parents can obtain a home equity loan at low interest, pay out the mortgage and the OP can make payments to the parents.

As for whether the parents face liability beyond the value of the chattel depends on the province where the chattel mortgage was executed. Some provinces are "seize or sue" jurisdictions. The creditor can seize the security (take back the car) or sue for what is owed, but not both.

Undoubtedly any financing documents will contain all kinds of onerous terms that favour the lender. Even in a seize or sue province, the documents evidencing the loan might run to 20 pages of boilerplate purporting to strip the borrower of all rights, allowing the lender do whatever it likes, including both seizing and suing and imprisoning the hapless borrower. But that does not mean, just because it's in the contract, it's enforceable. Some of it won't be. Contracts frequently contain terms the law won't enforce. For example, it could be that JAG's standard residential tenancy agreement purports to confer on the landlord _le droit du seigneur. _ But a court is unlikely to order specific performance, if sought. :grumpy: [Not picking on the honourable JAG here, just illustrating a point with sick humour.]

Lenders and others who plant invalid terms in their contracts usually protect themselves against the risk of a court striking down the entire agreement by incorporating a severability clause into the document. Typical wording looks like:

_Each paragraph of this agreement and the attached Schedules are separate and distinct covenants, severable one from the other and if such covenant is determined to be invalid or unenforceable, such invalidity or unenforceability shall attach only to the covenant to the extent of such invalidity or unenforceability, and all other covenants shall continue in full force and effect._


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## sags (May 15, 2010)

In the grand scheme of things, a 6% interest rate isn't particularly "onerous".

It is legal to charge up to 49% interest for vehicle financing. 

People are paying more than 6% to acquire secondary financing on a house. Corporations are issuing junk debt at 10% or higher.

Just keep it simple and put extra payments on the loan to lower the overall interest rate.

TD bank list their loans in their online banking and sums can be paid with a click of the mouse.


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## sags (May 15, 2010)

I also think the depreciation of a vehicle is somewhat overblown.

Almost everything we buy depreciates........furniture, appliances, clothing, electronics.

Payments are a "time use" proposition and should be considered over a longer period of time than the actual financing period.

Every year that a purchase is kept beyond the original financing, lowers the original cost per annum over the time period.

If I buy a vehicle and keep it for 20 years, I consider the cost over the 20 years of ownership.

I have found the best thing to do with all purchases is keep them for a long, long time.

New or used...........the math is the same.


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## Mukhang pera (Feb 26, 2016)

sags said:


> In the grand scheme of things, a 6% interest rate isn't particularly "onerous".
> 
> It is legal to charge up to 49% interest for vehicle financing.


Agree about the non-"onerous" comment. I am old enough to remember when an interest rate of 6% for a car loan, or a mortgage of real property or anything else would have seemed like a gift from the lender. 

Sags, are you sure about a cap of 49% for vehicle financing? I would have thought the matter would have been covered by s. 347 of the Criminal Code:

*Criminal interest rate*

347 (1) Despite any other Act of Parliament, every one who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or partial payment of interest at a criminal rate, is

(a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or

(b) guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

...

*criminal rate* means an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds *sixty per cent* on the credit advanced under an agreement or arrangement;

Is there separate legislation dealing with vehicle loans? You might be right, and I am simply uninformed.


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## Earl (Apr 5, 2016)

Couldn't you just get an unsecured LOC from your bank and use it to pay off the car loan then pay the LOC off at your leisure?

I think unsecured LOC rates are around 6% these days, so not much lower than your loan but still better.


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## carverman (Nov 8, 2010)

Earl said:


> Couldn't you just get an unsecured LOC from your bank and use it to pay off the car loan then pay the LOC off at your leisure?
> 
> I think unsecured LOC rates are around 6% these days, so not much lower than your loan but still better.


Unsecured loans are equivalent to a to a personal loan or a personal Line of Credit. 

Currently it is around 2.70% prime + at least 2.0 percent. (4.75%) Not much of a interest reduction, but it may make a difference if he has to repay $500 a month for the next 33 months or so or stretch out those payments over a longer 
period as he only has to pay 3% minimum payment on the loan amount to cover the interest due each month.

$16,550 balance remaining / 3% = $496 per month vs $518 that he is currently paying.
He has to qualify for this kind of loan with his income, but it should be doable.


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