Auto Loan Refinancing
While homeowners often think about refinancing their equity loans, car owners rarely consider refinancing their auto loans.
And, that can be a costly financial mistake.
The process is similar to refinancing your home―only it’s simpler.
As with home refinancing, you’re using a loan from another lender to pay off an existing loan, and doing so at a more favorable rate. So, you basically need to find a creditor willing to charge you an interest rate that’s cheaper than your original rate. A loan that’s only a single percentage point lower can make a substantial difference, especially if you have a large balance.
Just don’t try going to your current lender and seeing if they’ll re-work your loan; that’s almost always a waste of time.
Because the auto loan refinancing application only takes a few minutes to complete and the overall process isn’t cumbersome, you have little to lose by trying to get a better deal. Many lenders allow you to complete the application online, meaning you don’t even have to leave your computer. And, your car doesn’t need to be appraised.
Refinancing essentially helps anyone who wants to save some money.
But, it’s especially useful for those saddled with high interest rate loans, perhaps due to:
- A poor credit score.
- Not having enough of a credit history.
- Being unemployed.
- Rates going through a high cycle at the loan origin.
As long as you've haven't missed any loan payments, it's worth seeing if you can snag a more attractive deal this time around.
Auto refinancing also can benefit those who may have taken on more debt since the time of the loan―maybe due to buying a house or having a baby―and are looking for ways to lower their monthly car payments (and save money in the process).
Even those who got a good rate on their loan can still gain by refinancing, especially during periods of dramatic rate drops.
Financial experts disagree on the length of time to wait to refinance after you’ve received your loan. Some say six months is appropriate, while others recommend 18 months. But, again, it doesn’t hurt to try to refinance. (Some lenders do run a credit history check as soon as you apply for a loan, which could slightly lower your credit score for a few months.)
You can save anywhere from hundreds to several thousands of dollars by refinancing. The amount depends on a few factors, such as how much you owe on the loan, the initial interest rate, and the refinanced rate.
Just use our handy Auto Loan Calculator to determine your potential savings by comparing your current and new terms.
Keep in mind that some lenders charge an early termination fee if you pay off a loan ahead of schedule, and you may have to absorb a title change fee, too. Still, though, these fees shouldn’t add up to more than $250, and you may be able to avoid these charges.
Actually, it’s not a bad idea to look at some of the same sources you checked during your first auto loan search. That’s especially true if it’s been a while since you took out the loan, or if interest rates have fallen sharply since that time.
Be sure to include credit unions in your search. And, take advantage of loan comparison sites that allow you to sort through a number of online lending options in minutes.
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