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You're Probably Paying Too Much for Your Car Loan. Here's What You Can Do About It.

By Lou Whiteman - Feb 13, 2021 at 8:00AM

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Refinancing an auto loan is almost as easy as refinancing a mortgage.

Kevin Bennett is the CEO of MotoRefi, a company founded to help consumers save money on their car loans.

During an appearance on Motley Fool Live recorded on Feb. 4, Kevin joined Brendan Mathews from Motley Fool Ventures to talk about the auto refi industry and why almost all consumers would be wise to look into whether they could save money by refinancing their auto loan. 

Kevin Bennett: Most people get their auto loans at the car dealership. That's the experience that the vast majority of consumers have, and it's a vertically integrated transaction. Most consumers are spending months or weeks shopping around for their cars, predominantly, they're looking online, looking for features, looking for the right models, right vehicles, whether it's new or used, then they almost always end up at the dealership. At that dealership, they are not only signing contracts and picking up the car, but they're also getting the financing and insurance products. The experience that most people have is that they're in the last few months of the transaction, will go into the F&I office, and they will be wanting to drive off the lot, seeing that car, wanting the keys, really dying to get home with their new vehicle, but they're stuck with a big stack of paper, talking to someone about financing, insurance products, all these things. Lot of acronyms get thrown around. Usually check, check, check, "Can you make this payment?" "Yes." You may not even know what that interest rate is, and then you sign and drive off the lot. You know what your payment is but as I mentioned, you may not know your interest rate, you often don't know all the insurance products you have just bought. In that few minutes, that's actually where most auto dealers make all their money off you. They actually don't make money on cars. That's a little-known fact. Most people would assume that auto dealers make their money by selling cars, they don't, they make their money by selling the finance insurance products attached to the cars.

Brendan Mathews: Then the service associated with it. But yeah, I mean, [laughs] I have been in that little room, and you are exhausted, and you're not a finance expert but they've got somebody who does it all day. A lot of people are in sub-optimal car loans. I see a lot of people are refinancing their home loans but I don't hear about it as much with auto loans. How does auto refi compare to home refi?

Bennett: You're exactly right. I think when you think about the consumer finance journey most consumers go on, they'll often finance their education, they'll finance their car, initially, they'll finance their home, they'll refinance their home. They don't often refinance their car, it's not something that's as well-known, but refinancing a home is quite well-known and quite standard. Fifteen to 20% of mortgages get refinanced, only 1 to 3% of auto loans get refinanced, so a very small percentage. When you think about consumer awareness, according to TransUnion's (TRU 0.89%) study, only 47% of people are even aware they can refinance their car. Most people don't even know that it's a possibility.

Mathews: Who's a good candidate to refinance their car, and how's MotoRefi changing this experience?

Bennett: Great question. Amazingly, almost everyone is a good candidate to refinance their car. Eighty percent of consumers can save a meaningful amount of money by refinancing their cars. If you own a car, the chances are, it's worth checking out, and I will say a plug for MotoRefi. Go to our website and just check the rates you qualify for. No requirements, no dings on your credit. Just find out could you save money? Could you get in a lower rate? Education is really the first step knowing the right decision for you. If the answer is no, then stick with what you got. If the answer is yes, then it's often a very smart move. We save people on average of $100 a month on their payments, which is pretty meaningful for folks. The people who get the best deal are often the super prime credit or above. If you have an 875 credit score, you may have done pretty well. But anything 850 or below, often you can save a decent bit of money.

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