Question:
I have a 98 Saturn SL2. My outstanding balance is around $9,000. I have a 60-month loan, and have made nearly 30 payments on it. (For those doing the math, I didn't put anything down, and also financed the sales tax.) Anyhow, my payment is $308 a month. I'd like to lower that payment because I am trying to get prequalified to buy my first house.

How common is it to refinance a car loan? Would I do it with my current lender, or through another lender? Under what conditions/in what situation does it make sense to refinance a car loan? In my case, I'm not trying to refinance for a lower interest rate (currently I pay 7.75 percent), but for a lower monthly payment. I realize this would stretch the time to pay off the car, and result in more finance charges, but I'm trying to do anything I can to buy a decent house.

Answer:
I would think that if the car payment (which isn't all that high) is what's between you and a decent house, you're probably not in a position to purchase a house. I was in a similar situation once. I went to the credit union and asked to have the loan refinanced, and they did it for me right on the spot, no muss no fuss. Stretched the loan from something like 2 years to 4. Your lending institution may have similar policies doesn't hurt to ask.

How common is it to refinance a car loan? Would I do it with my current lender, or through another lender? Under what conditions/in what situation does it make sense to refinance a car loan?

Going to a new lender means financing a "used" car rather than a new one .. that generally means a significantly higher interest rate and the allowable length of loan, depending on the lender, may not be any longer than 3 or 4 years. (you already have a 30 month loan to go) Will your current lender rewrite the loan at the same rate? Even if they do, how much would your payment drop?

How tight are your other ratios for qualifying for that mortgage? Not all lenders use the same ratios. Any chance you can borrow from a 401K to pay down your loan so you can refinance a smaller balance? Do you belong to a credit union? Often credit unions will do things other lenders will not do. I suggest if you belong to a credit union or have access to join one you ask there. The amount of debt you choose to carry is certainly your own business, and trying to buy a home is generally a wise financial move. But factoring in the mileage you already have put on the car along with the very long period of the loan you are talking about, you may want to consider that you're probably headed for a situation where the resale value of the car will end up being less than what you owe on it. IOW, you'll not only have no equity for a trade when you buy your next car, but a bill to pay off. Just something to consider. Is there any way you could instead increase your monthly income by whatever amount you might be looking at decreasing your car payment?

Just something to consider. Is there any way you could instead increase your monthly income by whatever amount you might be looking at decreasing your car payment?

I don't get the opportunity to work any significant overtime at my present job. Futhermore, since my job has irregular hours, that makes it very difficult to find a part-time job to supplement my income. I could do some freelance work in my field, but the pay for that isn't really worth the loss of my free time. These are just some of the reasons I'm considering switching fields.

I don't get the opportunity to work any significant overtime at my present job. Futhermore, since my job has irregular hours, that makes it very difficult to find a part-time job to supplement my income. I could do some freelance work in my field, but the pay for that isn't really worth the loss of my free time. These are just some of the reasons I'm considering switching fields.

If you barely qualify for that mortgage based on your current earnings and then switch fields, which often results in lower initial earnings, that could cause quite a problem. Perhaps it would be better to switch fields first and then pursue the acquisition of a home? Did you check your loan paperwork? I haven't had a car loan in quite awhile, but it used to be that, unlike mortgages, prepayment penalties were very common. If your loan contains one, it might not pay to refinance. And I don't think it's that common to refinancea car loan, since their useful lives are relatively short.