With interest rates near all time lows for the last several
years, many people have been refinancing their mortgages,
lowering their mortgage interest rates and monthly
payments. It is also possible to save a lot of money by
refinancing your auto loan.
Auto loans carry much shorter payoff schedules than do home
loans, so it is to your advantage to refinance your car
loan as early as possible, before a good deal of the
original loan has already been repaid. If you are already
several years into making payments on a car, the savings
will not be as great.
When you refinance an auto loan, you will pay off the
existing loan completely and enter into a new loan
agreement, which will ideally carry a lower interest rate
than the original loan. If your refinance loan has a
payoff time longer than what was left of your original car
loan, and your interest rate is equal to or lower than your
previous interest rate, you will in turn have lower monthly
payments. You may opt to take the interest savings from
the new loan and apply it toward the principal, thereby
reducing your payoff time.
Before you apply for an auto refinance loan, you should
determine your credit score. To qualify for a refinance
loan, you do not have to have perfect credit, but your FICO
score should be at least 550 or higher to qualify for a
competitive interest rate.
The next thing to look at is the interest rate on your
current auto loan. You want to make sure you will be able
to get a lower interest rate when you refinance. If you
find you can't get a lower interest rate than you already
have, it may not be worth it to refinance, unless you are
satisfied to simply extend your payoff time to get lower
monthly payments. In contrast, if you are able to knock
down your interest rate by several percentage points, you
could save thousands of dollars during repayment.
When refinancing a car loan, you will need to know the
exact amount needed to pay off your original loan. While
some companies offer an auto equity loan with cash back,
most traditional lenders will only loan enough money to
cover the payoff cost of the vehicle. In either case, you
will need to know the payoff balance of your existing loan.
Another benefit of auto loan refinancing is that in most
cases you will be able to skip a payment. Because you are
entering a completely new financial agreement, there will
be some time involved in paying off your original loan and
receiving a payment schedule for the refinance loan. This
will allow you to effectively skip a monthly payment.
Finally, compare several lenders and get a feel for what
kind of interest rate you are likely to get on an auto
refinance loan. Rates and terms will vary from lender to
lender. Before getting your car loan quotes, collect all
necessary personal information, including address and phone
number, time with your current employer and salary level,
residence history, and contact information. Doing your
homework ahead of time will insure that you get the best
possible interest rate for your auto loan refinance.
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Gregg Pennington writes articles on a number of topics
including auto loans, loan consolidation, credit and debt.
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