You may not have considered refinancing your auto loan.
Perhaps you have only a year or less before your current
car loan is paid off, or you are satisfied with your
current interest rate. Auto loan refinancing may still be
a viable option for you; here are some situations where it
might benefit you to refinance your auto loan.
The longer repayment time you have left on your current
auto loan, the more savings you will realize by refinancing
your loan at a lower interest rate. Assume you borrowed
$15,000 on your current auto loan for 60 months with an
interest rate of 10%. Your monthly payment would be about
$319. After paying on the loan for one year, the remaining
balance would be approximately $12,566. If you refinanced
the balance for 48 months with an interest rate of 8%, you
would lower your monthly payment to around $307 while not
changing the payoff time of your loan.
If, however, you want to lower your monthly payments
dramatically, the answer is not only to try to get a lower
interest rate on your auto refinance loan, but also to
extend your repayment time. If you take the balance of
$12,566, and amortize it over 60 months with an interest
rate of 8%, you would lower your payments to $255 per month.
What if you only have 2 years left on your auto loan?
Using the above example, at this point you would have a
balance on your loan of about $6907. You could refinance
for 24 months, lowering your payments to $312; probably not
even worth your time. Even if you were able to get an
interest rate of 6%, you would only lower your monthly car
payment to $306 - still nothing to get excited about. Take
the loan and refinance it at 8% for 36 months, and your
monthly payment drops to $216, a much more substantial
reduction of your monthly payments.
Assume that you have been making car payments on a 72 month
loan with a 14% interest rate and a beginning balance of
$15000, for a year. Your monthly payments are $309, and
your remaining balance is $13,079. You refinance the loan
for 60 months, not changing your payoff time, but this time
you are able to obtain an 8% interest rates. Your monthly
payment drops to $269 per month. If you continued to make
the same payments of $309 as before, then you would shave
nine months off the payoff time of your loan.
Once you have defined your objectives in refinancing your
car loan, you can begin shopping for auto loan refinancing
quotes. There are many lenders who offer free online
quotes, though you may have to provide some personal
information to determine what kind of interest rate you
qualify for, and if your credit and income level are
sufficient to obtain the amount of credit you are seeking.
Compare several auto loan companies online to get an idea
of what you can expect in the way of interest rates and
terms. Before settling on a lender, read the fine print and
beware of any hidden fees. If you don't already know your
FICO score, order a free copy of your credit history report
from the three major credit reporting bureaus, and make
sure all items on the credit reports are accurate. Choose
a reputable lender that offers you the best interest rate
and a payoff time that you find acceptable. An auto
refinance loan is a practical way to save money, pay off
your debt more quickly, and lower your monthly car payment.
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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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