Even buyers with good credit can find themselves paying high interest on an auto loan. The 2010 Financial Reform Act reins in many deceptive lending regulations, but exempts auto dealers, who often become middlemen between lender and buyer, marking up interest rates by 3 percent. A 2010 New York Times article cites one practice in particular, the "Yo-Yo" tactic. The buyer agrees to buy the car at a given price and interest rate "subject to loan approval." Later, the dealer yo-yos the buyer back, telling him the bank turned down the loan, but offering another loan at a significantly higher rate. Buyers with high-rate auto loans should pay them off quickly.
Review Credit Cards
Sometimes credit cars from credit unions or banks specializing in low-risk credit cards will have rates lower than high-rate auto loans. Simmons First, one bank that opens accounts for consumers with excellent credit, charges 11.25 percent on cash transfers, as of September 2010.
Get Better Loan
Consumers who have just taken out a car loan sometimes feel that they must wait before applying for a better loan. They can apply for a better loan immediately. If you belong to a credit union, refinance your car with them.
Increase Payment Amounts
Think of your monthly income as a fund source you can reallocate. If you have credit cards with low interest rates and you currently pay more than the minimum on one or more of them, make minimum payments on your lowest interest rate credit cards, and reallocate that money to pay off the auto loan faster.
Accept Promotional Rate Card
Banks periodically send out invitations to accept new credit cards with teaser interest rates close to zero percent for 6 months or a year. Often, these cards come with checks you can write to pay off other debt without paying the usual high rates for money transfers. The senders hope you will pay off another credit card, but you can pay off or pay down your high rate auto loan instead.
Home Equity Loans
If you own your house and have enough equity in it to take out a home equity loan, that loan loan will probably have an interest rate of less than 7 percent. If you do this, be disciplined about the amount you borrow. The bank will encourage you to borrow as much as your equity will allow. Borrow just enough to pay off the auto loan.
Negotiate With Lender
Lenders during tough economic times anticipate that many borrowers will have liquidity problems. Banks do not like lowering interest rates on a current loan, but you have already fallen behind on your payments, your banker may be motivated to help you, particularly if you explain, convincingly, with data, that if you cannot renegotiate the loan, you must file bankruptcy.
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