Just wanted some clarification regarding my auto loan that I have had for about 2.5 years. I have just been considering refinancing with another lender to get a better rate and have some questions regarding my current loan.

I have a loan which the initial term for 72 months and a payment of $550. The balance now is roughly $19k with a interest rate of 19% I see on my statement each month that $333 of that $550 payment is applied to the interest. That being said, it doesn't seem to my advantage considering I probably won't keep this loan for the entire 72 month period before I refinance or buy another vehicle.

My question is, is it common for a lender to apply 60% of a payment to interest? Also, how will that affect my payoff balance if and when I decide to pay off the loan (and refinance)?

btw - my lender refuses to change the way my payment is applied, but did state that any excess payment can eventually be applied to principal

You have a major sub-prime loan. So much of your payment goes to interest because your interest rate is so high (and the term is so long). My first thought in replying to this was to recommend selling the vehicle and trading down to something that you can pay for with cash (or at least with a significant down payment). From your user name I assume that you have a 2004 Jeep Wrangler. If so, I would suspect that you very well may owe more on it than it is worth unless it is a Rubicon with very low miles. Either way, I would assume that the only reason that you have this rate is because you have very poor credit. At the time that I picked up my 2004 Wrangler, I had VERY bad credit and financed through Chrysler at 14% but had it adjusted way down after less than a year. If my assumption that you are upside down on the loan is correct, you may have a very difficult time attempting to get another lender to refinance you for the full balance. If you would like to give me additional information on the vehicle (trim level: SE, X, Sport, Rubicon, mileage, soft/hard top, and condition) I can give you an idea where you stand on the loan.

I agree with James.

Yes, it is common that a huge portion will be applied to interest payments and the principle will be very slowly reduced. That's how they make money and sub-prime borrowers will have to pay more.

If you don't want to trade down you may want to look at ways to increase your payment so that the principle will be paid off faster which will also reduce your interest payments.

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