Must make three payments then you can refinance?

[Muskiez]

If there is no language in the contract stating they can come after you for that discount/rebate, then there is nothing they can actually do if you refinance early. I read and am told its usually an honor system. If you like the dealership, they treated you well; wait until after the 3rd payment clears before refinancing. If you were treated poorly, review the contract and (assuming no negatives are found) refinance early.

Thats what I'd do, anyway, assuming I hadn't walked out for being treated poorly.

You are exactly right. I was told the exact same thing by my dealership that I had to wait 3 months to re finance. I read thru the whole contract and it specifically said there was no penalty for early payoff. I almost walked out of the place when buying for a few reasons but they were a couple thousand cheaper than any other dealership around. I refinanced the day I received my title in the mail which was mabe 30 days. Never heard a word about it from the dealership and that was a year ago

 

[HMC8403]

Generally dealers can mark-up interest rates by 2% if the customer is gullible. At the buy-rate (actual rate the bank approves) the dealer will get 1% of the amount financed. If the rate is marked up, the dealer will keep 70-80% of that extra interest. A 5yr loan at 2.9% calculates to $3,775 in interest, same loan at 4.9% = $6,478 interest; from the $2,703 extra interest the dealer would get @ $2,030 as soon as the loan passes underwriting. If the loan is paid off between 90-180 days (depending on the bank), a charge-back occurs and the dealer pays back that profit.

if the rebate requires you to finance with Chrysler Capital, the rate will be higher; take the rebate and refinance the second your first statement arrives.

A Winter of Audi special when my wife got her car; it was 4.9% but they made the first 3 payments up to $700. I financed with $0 down at a lower term to get the payment to $700; after the first three payments were paid by Audi, I refinanced with my C.U. at a much lower rate.

 

[HMC8403]

You are exactly right. I was told the exact same thing by my dealership that I had to wait 3 months to re finance. I read thru the whole contract and it specifically said there was no penalty for early payoff. I almost walked out of the place when buying for a few reasons but they were a couple thousand cheaper than any other dealership around. I refinanced the day I received my title in the mail which was mabe 30 days. Never heard a word about it from the dealership and that was a year ago

You don't even have to wait that long. If you call the banks 800 number a week later, they can look up your account with your SSN and can request a payoff at that time. Take the payoff to your own bank and they will do the rest.

 

[cj7]

the "something wrong with your SSN" crap was a sleazy bold-face lie. I wouldn't do business with bottom-feeders like that. As others have said, if there was an issue with your SSN, you wouldn't have qualified for the loan amount. And the 3 or 6 month requirement or request is so the dealership can get their referral-fee/kickback/spiff on the loan. Nothing wrong with that if they're upfront about it.

About refinancing that early, keep in mind, on any amortized loan, the early payments will have the front-loaded interest (proportion of each payment is some part principal and some part interest). When you refinance, the amortization schedule starts all over again and you'll 'lose' that front loaded interest you paid. Your APR would need to be significantly better or enough to offset what you've lost in interest payments.

I’m with you up to the “front-loaded” interest rate. This loan’s interest is calculated daily, on the principal balance that day, so there is no front loading. The sooner you refinance, the sooner you start paying less interest.

I agree with the posts, that if the dealer was honest, I would consider their request. I’m ok helping them earn a hundred bucks, if it cost me just a couple. If they tried to scam, they’ve lost all that good will.

 

[DevinB]

I’m with you up to the “front-loaded” interest rate. This loan’s interest is calculated daily, on the principal balance that day, so there is no front loading. The sooner you refinance, the sooner you start paying less interest.

This is a long read and assumes you're paying the monthly payments for each loan to completion, but if you want to understand why you're wrong, have a look. Most people don't get this. The interest rate itself isn't front loaded, but the interest-portion of each equal payment is highest at the beginning of the payment schedule due to the formula for EMI (Equal Monthly Installment) amortized loans...this is a due to the actual formula used to calculate your monthly payments on standard car loans and mortgages:



Plugging in the relevant values for a 70K car loan at 5.0% interest for 60 months gives you a monthly payment of ~ $1321 with a payment schedule of (using a standard online calculator based on the above formula ...they all are...this one is from https://www.creditkarma.com/calculators/amortization)



Notice that the interest portion of each of your payments is largest at the beginning, aka front-loaded. As you pay each subsequent payment the interest portion decreases and the principal portion increases. This is how the formula works. So you're paying the greatest amount of interest per payment on the initial payments. Your remaining payoff balance is only decreasing by the principal portion of each payment. Over the course of the loan, you'll pay $1321 * 60 = $79,259, or $9,259 in total interest above the purchase price of the vehicle, or from the website:



So say a dealer is requiring you to pay 6 months of payments before refinancing, and that's what you do. And say that you only get a slightly better interest rate from another bank at 4.9% instead of 5. Using your logic, 4.9 is less than 5, and in your words, the sooner you refinance to a lower rate the sooner you pay less interest. This is where you and most people overlook the effect of resetting the amortization schedule when refinancing. You're focusing on the tree and forgetting about the forest. You would have been better off just finishing off paying the 5.0% loan and not refinancing. Why? Because, you've already paid 6 full payments, which is $1321 * 6 = $7,926...but your principal only decreased by $70,000 - $63759 = $6,241 due to the front-loaded interest portion that is normal with amortized/EMI loans. So now you go refinance with ANOTHER 5 year loan with a brand new payment schedule, starting at $63,759 as your starting principal (from the table above after 6 months of payments from your old loan). Plug a 5 year loan on $63,759 at 4.9% APR into that same online calculator and you'll get:



So now of course your payments are lower....but you've effectively now done a 66 month loan instead of a 60 month loan. So now over the course of this new loan, you'll end up paying a total of about $1200 * 60 = $72,018....and then you add on the $7,926 that you paid before you refinanced and you're at $72,018 + $7,926 = $79,944...which is greater than your original total of $79,259 by $685 bucks. You would have been better off just keeping your 5% loan and not refinancing; you would have saved $685 bucks. You would have needed at least a 4.5% interest rate instead of 5.0% to offset the front-loaded interest and overall loan-lengthening (amortization schedule reset) of a whole new loan.

And that's what I told the gentleman earlier, that he'd need a significantly lower interest rate to justify the refinance (assuming you're paying the EMI payments to completion). So if you plan to pay the exact EMI through the course of the each loan, refinancing isn't always the right choice. Only way the refinance makes sense in this particular case is if A) you need the lower monthly payment and you don't care that you'll be paying extra overall in the end, or B) you intentionally overpay the refinanced loan with your older/higher monthly payment.

This effect isn't that big on car loans, but on mortgages it can be a drastic increase. This is why the same mortgage company will often come after you with an offer to refinance at a slightly lower rate after you're already part-way through your mortgage at a slightly higher rate. It seems like a great deal at first, but they're testing you to see if they can take advantage before you realize you're getting duped. Because they're betting you'll be like most and just pay the new/lower EMI through the entire new term of the new loan and make them significantly more money off of you in the long run. For example, refinancing a $450K house at 4.9% APR on a 15-year loan after previously paying 6 months on a 5.0% version of the same loan...will net the bank about 17K more of your money by the time you're done.

 

[cj7]

This is a long read and assumes you're paying the monthly payments for each loan to completion, but if you want to understand why you're wrong, have a look. Most people don't get this. The interest rate itself isn't front loaded, but the interest-portion of each equal payment is highest at the beginning of the payment schedule due to the formula for EMI (Equal Monthly Installment) amortized loans...this is a due to the actual formula used to calculate your monthly payments on standard car loans and mortgages:

View attachment 86293

Plugging in the relevant values for a 70K car loan at 5.0% interest for 60 months gives you a monthly payment of ~ $1321 with a payment schedule of (using a standard online calculator based on the above formula ...they all are...this one is from https://www.creditkarma.com/calculators/amortization)

View attachment 86294

Notice that the interest portion of each of your payments is largest at the beginning, aka front-loaded. As you pay each subsequent payment the interest portion decreases and the principal portion increases. This is how the formula works. So you're paying the greatest amount of interest per payment on the initial payments. Your remaining payoff balance is only decreasing by the principal portion of each payment. Over the course of the loan, you'll pay $1321 * 60 = $79,259, or $9,259 in total interest above the purchase price of the vehicle, or from the website:

View attachment 86300

So say a dealer is requiring you to pay 6 months of payments before refinancing, and that's what you do. And say that you only get a slightly better interest rate from another bank at 4.9% instead of 5. Using your logic, 4.9 is less than 5, and in your words, the sooner you refinance to a lower rate the sooner you pay less interest. This is where you and most people overlook the effect of resetting the amortization schedule when refinancing. You're focusing on the tree and forgetting about the forest. You would have been better off just finishing off paying the 5.0% loan and not refinancing. Why? Because, you've already paid 6 full payments, which is $1321 * 6 = $7,926...but your principal only decreased by $70,000 - $63759 = $6,241 due to the front-loaded interest portion that is normal with amortized/EMI loans. So now you go refinance with ANOTHER 5 year loan with a brand new payment schedule, starting at $63,759 as your starting principal (from the table above after 6 months of payments from your old loan). Plug a 5 year loan on $63,759 at 4.9% APR into that same online calculator and you'll get:

View attachment 86301

So now of course your payments are lower....but you've effectively now done a 66 month loan instead of a 60 month loan. So now over the course of this new loan, you'll end up paying a total of about $1200 * 60 = $72,018....and then you add on the $7,926 that you paid before you refinanced and you're at $72,018 + $7,926 = $79,944...which is greater than your original total of $79,259 by $685 bucks. You would have been better off just keeping your 5% loan and not refinancing; you would have saved $685 bucks. You would have needed at least a 4.5% interest rate instead of 5.0% to offset the front-loaded interest and overall loan-lengthening (amortization schedule reset) of a whole new loan.

And that's what I told the gentleman earlier, that he'd need a significantly lower interest rate to justify the refinance (assuming you're paying the EMI payments to completion). So if you plan to pay the exact EMI through the course of the each loan, refinancing isn't always the right choice. Only way the refinance makes sense in this particular case is if A) you need the lower monthly payment and you don't care that you'll be paying extra overall in the end, or B) you intentionally overpay the refinanced loan with your older/higher monthly payment.

This effect isn't that big on car loans, but on mortgages it can be a drastic increase. This is why the same mortgage company will often come after you with an offer to refinance at a slightly lower rate after you're already part-way through your mortgage at a slightly higher rate. It seems like a great deal at first, but they're testing you to see if they can take advantage before you realize you're getting duped. Because they're betting you'll be like most and just pay the new/lower EMI through the entire new term of the new loan and make them significantly more money off of you in the long run. For example, refinancing a $450K house at 4.9% APR on a 15-year loan after previously paying 6 months on a 5.0% version of the same loan...will net the bank about 17K more of your money by the time you're done.

Funny, I agree that refinancing after 6 months into the same term loan is not advantageous unless there’s a big enough interest rate reduction.

But, if you refi before the first payment is due, just about any reduction in interest rate will result in less total interest paid.

Yes, if you refi a 60month loan after 6 months into a 60 month loan, you may wind up paying more total interest, or you may not, depending on the reduction in rate. If you refi after 6 months into a 60 month loan, you’ve effectively turned it into a 66 month loan, I get it. Which means you’d need a larger rate reduction to make it worthwhile. Maybe the more accurate platitude would be “The sooner, the better, but if you wait too long, don’t”

My example isn’t representative, but I went from a 4% 72mo dealer loan to a 2.24% 60 mo credit union loan, 10 days in. Several months later, i refi’d that loan into a 1.79% / 60mo. Normally would not be worth the effort, but I kept the same payment amount. This reduced my net cost, all with one phone call.

I wonder,if it was 4%/72mo going to a 1.79%/72mo, after how many months would switching actually increase total interest ?

 

[highgear2005]

Many years ago! I dated a woman who worked in the loan department at the local dealership! The story’s she told, to keep it short these people are not looking after your best interest! You got taken for a ride! My credit union will only take 2% off the loan rate. If your at 5% rate my credit union will give you the loan at 3% with your credit score you should be below 2%. I play the game take all the rebates get the lowest price on the truck. NEVER talk to the dealership about refinancing! I do wait three months just to let the dust settle and allow time for the paperwork to reach the right departments. (3months) then I take the loan to my credit union my trucks at 2.1% and the wife’s at 1.99% and I’m happy with that.


Sent from my iPhone using Tapatalk

 

[Jako]

This is a long read and assumes you're paying the monthly payments for each loan to completion, but if you want to understand why you're wrong, have a look. Most people don't get this. The interest rate itself isn't front loaded, but the interest-portion of each equal payment is highest at the beginning of the payment schedule due to the formula for EMI (Equal Monthly Installment) amortized loans...this is a due to the actual formula used to calculate your monthly payments on standard car loans and mortgages:

View attachment 86293

Plugging in the relevant values for a 70K car loan at 5.0% interest for 60 months gives you a monthly payment of ~ $1321 with a payment schedule of (using a standard online calculator based on the above formula ...they all are...this one is from https://www.creditkarma.com/calculators/amortization)

View attachment 86294

Notice that the interest portion of each of your payments is largest at the beginning, aka front-loaded. As you pay each subsequent payment the interest portion decreases and the principal portion increases. This is how the formula works. So you're paying the greatest amount of interest per payment on the initial payments. Your remaining payoff balance is only decreasing by the principal portion of each payment. Over the course of the loan, you'll pay $1321 * 60 = $79,259, or $9,259 in total interest above the purchase price of the vehicle, or from the website:

View attachment 86300

So say a dealer is requiring you to pay 6 months of payments before refinancing, and that's what you do. And say that you only get a slightly better interest rate from another bank at 4.9% instead of 5. Using your logic, 4.9 is less than 5, and in your words, the sooner you refinance to a lower rate the sooner you pay less interest. This is where you and most people overlook the effect of resetting the amortization schedule when refinancing. You're focusing on the tree and forgetting about the forest. You would have been better off just finishing off paying the 5.0% loan and not refinancing. Why? Because, you've already paid 6 full payments, which is $1321 * 6 = $7,926...but your principal only decreased by $70,000 - $63759 = $6,241 due to the front-loaded interest portion that is normal with amortized/EMI loans. So now you go refinance with ANOTHER 5 year loan with a brand new payment schedule, starting at $63,759 as your starting principal (from the table above after 6 months of payments from your old loan). Plug a 5 year loan on $63,759 at 4.9% APR into that same online calculator and you'll get:

View attachment 86301

So now of course your payments are lower....but you've effectively now done a 66 month loan instead of a 60 month loan. So now over the course of this new loan, you'll end up paying a total of about $1200 * 60 = $72,018....and then you add on the $7,926 that you paid before you refinanced and you're at $72,018 + $7,926 = $79,944...which is greater than your original total of $79,259 by $685 bucks. You would have been better off just keeping your 5% loan and not refinancing; you would have saved $685 bucks. You would have needed at least a 4.5% interest rate instead of 5.0% to offset the front-loaded interest and overall loan-lengthening (amortization schedule reset) of a whole new loan.

And that's what I told the gentleman earlier, that he'd need a significantly lower interest rate to justify the refinance (assuming you're paying the EMI payments to completion). So if you plan to pay the exact EMI through the course of the each loan, refinancing isn't always the right choice. Only way the refinance makes sense in this particular case is if A) you need the lower monthly payment and you don't care that you'll be paying extra overall in the end, or B) you intentionally overpay the refinanced loan with your older/higher monthly payment.

This effect isn't that big on car loans, but on mortgages it can be a drastic increase. This is why the same mortgage company will often come after you with an offer to refinance at a slightly lower rate after you're already part-way through your mortgage at a slightly higher rate. It seems like a great deal at first, but they're testing you to see if they can take advantage before you realize you're getting duped. Because they're betting you'll be like most and just pay the new/lower EMI through the entire new term of the new loan and make them significantly more money off of you in the long run. For example, refinancing a $450K house at 4.9% APR on a 15-year loan after previously paying 6 months on a 5.0% version of the same loan...will net the bank about 17K more of your money by the time you're done.

Nice JOB, I believe a lot of people do not know how loan amortization payments work as far as interest and principal. I have seen a few members let their loan go a few months before switching (being nice to the dealership/sales) meanwhile the original loan amount was not reduced that much.

When I received my second to last mortgage payment they sent me a bill with the last payment included. That was a nice try on their part but a phone call straightened that out.

 

[Mirowpl]

So when I bought my 2020 in Nov, the credit department was closed as one of them had tested positive for COVID. So my salesman was doing the paperwork. First he said, I assume you don’t want any of the add on stuff like additional protection plans and such. I thought that was nice. I didn’t trade because he was upfront and said I would not like their offer and and they really didn’t want 2wd trucks with over 150k miles and 12 yrs old. So asked if I was putting anything down. I said yes $10k which was what I knew I could sell my truck. At the time the Chrysler rebates were far better than 0% for 72 months. I m doing all of this over email and phone, he asks what I think my credi score was and I tell him 840. He of course says he will verify it whe I get their but he can get a credit union to offer a better rate than Chrysler. I got 2.125% for 60 months.
He said come over in two hours and he would have all paperwork ready. I stopped by and was in and out in 20 mins. It was so nice to not have to put up with all the bull stuff from the supposed it “finance” people. There are good dealers and salesmen still out there. It is even worth it it pay a little more to have a better experience

 

[Jako]

So when I bought my 2020 in Nov, the credit department was closed as one of them had tested positive for COVID. So my salesman was doing the paperwork. First he said, I assume you don’t want any of the add on stuff like additional protection plans and such. I thought that was nice. I didn’t trade because he was upfront and said I would not like their offer and and they really didn’t want 2wd trucks with over 150k miles and 12 yrs old. So asked if I was putting anything down. I said yes $10k which was what I knew I could sell my truck. At the time the Chrysler rebates were far better than 0% for 72 months. I m doing all of this over email and phone, he asks what I think my credi score was and I tell him 840. He of course says he will verify it whe I get their but he can get a credit union to offer a better rate than Chrysler. I got 2.125% for 60 months.
He said come over in two hours and he would have all paperwork ready. I stopped by and was in and out in 20 mins. It was so nice to not have to put up with all the bull stuff from the supposed it “finance” people. There are good dealers and salesmen still out there. It is even worth it it pay a little more to have a better experience

Want to mention the dealership and give a ? Seems like a place other members may be interested in using.

 

[Mirowpl]

BTW, I was a banker in lending my entire work career. I am retired/disable now. Any prepayment penalty must be written into the note itself or otherwise referenced as an attachment that you would sign. Also, a car loan being a consumer note, many states prohibit prepayment penalties on consumer loans. So don’t ever listen to a dealership’s “finance” person. They are not well versed and look out for the dealership and themselves as they make bonuses based on what they can sell you

 

[Yangster]

I rec'd a letter from the dealer after I placed an order. It said I had too many accounts opened (only 1) and too much available credit. My Experian score was 845. I went on to the Ramcares website and clicked on the financing icon and applied. Instantly approved by Chrysler Credit with an approval number to give the dealer.

 

[KMach]

I waited until i received the title to avoid having multiple liens recorded on the title. I refied and submitted that title and lien release and got another with new interest rate. Financing with chrysler cap was the only way to get the rebates. Nobody is gonna tell me what i can or cant do with my personal finances.

 

[GFK51]

Yup, the whole 3 payments (or months) until refinance is just for them to get their kickback, as stated. I wonder if the fee/kickback is less under the 0% offer?

Review your contract, make sure they didn't add any language that states you will be hit with penalties for refinancing early. I've heard its very rare for them to do this, but it sometimes happens. If nothing in there about prepayment/early repayment penalties, I'd call corporate and make a stink about it, and if that did no good, blast it on social media and refinance ASAP.

But that is probably the almost-nuclear option. If you don't want to make a big stink, but still stick it to 'em, just do the last step (after reviewing the contract) and refinance ASAP.

Good advice, I will be calling corporate next week and complain about the Koons RAM dealership in Tysons Corner, VA.

 

[wallyuwl]

The mistake was still buying the truck after they pulled their fake "problem with SSN" BS. File a complaint with Chrysler corporate and refinance ASAP, there is no prepayment penalty on these loans. Make sure you got all of the applicable rebates since you did not have 0%, since rebates are usually better without taking 0%.

 

[GFK51]

The mistake was still buying the truck after they pulled their fake "problem with SSN" BS. File a complaint with Chrysler corporate and refinance ASAP, there is no prepayment penalty on these loans. Make sure you got all of the applicable rebates since you did not have 0%, since rebates are usually better without taking 0%.

Should have walked out but I drove 150 miles for this truck, too late now to get the rebates. I appreciate your help and will be calling next week. They also had the audacity to ask me to give them all 10's on the survey.

 

[wallyuwl]

Should have walked out but I drove 150 miles for this truck, too late now to get the rebates. I appreciate your help and will be calling next week. They also had the audacity to ask me to give them all 10's on the survey.

Getting bad marks on those surveys really goes against them with the manufacturer. Tell it like it is. Hope you at least got a good dealer discount to make up for all the shenanigans and possibly losing out on $500 or more on rebates since you didn't leave with 0%.

I bought about 150 miles away, too. I bought the deal, not the exact truck configuration I really wanted. At least it is the right color. Two days into ownership I was panicking and regretting my decision. Just REALLY did not like the etorque. Still not crazy about it and would not get it again if given the option. But I have kept the truck and will probably keep it at least until powertrain warranty is up or close to being up (have my eye on a Longhorn with 33 gal tank and UConnect5 in a few years!). But I called the selling dealership, and they basically said too bad, you bought the truck now deal with it. You can trade it in if you want and "we'll give you a good price." I told them to look into it, they said they would, and never heard back. I was going to keep the financing 3 months since the price was good and the buying process was OK, but after not getting a call back I refinanced for 60 months at 1.99% with a local credit union the same week I got the first Chrysler Capital bill. There is one local dealer chain with decent prices (not rock bottom, but decent) that has a 7 day return policy, no questions asked. I will probably special order with them next time. On this truck purchase they were about $2k worse than the dealer I bought from when you consider truck price and trade-in.

 

[User_3336]

OP, that dealer was full of SH*T ! I love all the stories finance managers have made up in all my years of car buying.

 

[diyram]

I waited until i received the title to avoid having multiple liens recorded on the title. I refied and submitted that title and lien release and got another with new interest rate. Financing with chrysler cap was the only way to get the rebates. Nobody is gonna tell me what i can or cant do with my personal finances.

What happens if there are multiple liens on the title? The finance guy at my dealership mentioned something about the title if I refi too soon. I ignored him and had the loan paid off the day before the first payment was due to Chrysler Capital.

 

[thedream829]

I believe you got played like the guitar sir.