This is something I’ve done and I am happy about it. So here we go.
If you tried your best to cash flow your MBA to the best of your ability but still ended up with some student loans, there is a way to save some money. Turns out that banks are willing to give you a lower rate if you use a collateral such as your car. Here is what you will need to do:
- Make sure your car is paid off and you have your title in hand.
- Look at the local banks or credit unions and see which ones offer the lowest car loan rates. For example, I used Digital Federal Credit Union and their current car loan rate is 1.99%. You may be able to find lower rates elsewhere.
- Read the fine print. Often times to get the lowest rate, banks require direct deposit (just a portion of your paycheck is fine) and auto payment.
- Tell the bank you want to take a loan and use your car as a collateral. Ask any questions you may have on how it works and what are the details.
- The bank will check the value of your car. Have your VIN number handy (it can be found on your car registration). Obviously the newer your car is, the larger amount you will get. Many banks will give you up to 120% of the NADA value of your car.
- For the final stage of signing the paperwork you will need to bring your car title and give it to the bank. You will get it back once the loan is paid off.
You can use this calculator to see what your savings are going to be. So let’s say you have a $15,000 student loan with 6.8% APR. In 5 years you will pay $2,736 in interest. If you knock it down to 1.99% APR you will pay $771 in interest during the same period. That’s $1,965 in savings– in my humble opinion, a worthy amount of savings for a few hours of hassle.