Do you feel that the interest rate on your auto loan is too high? Refinancing a car loan could save you a significant amount of money. Auto loan refinancing is the process of a financial institution paying off your current loan and issuing you a new one with a different interest rate. The term generally remains the same: if you had 48 months left to pay on your original loan, you will have 48 months left to pay with your new loan.
In most cases, people seek to refinance their car loan to lower their monthly payments. You can achieve this in several ways.
One way to get a better rate is if your credit score has improved since you took out the loan. If it has, you may qualify for a lower interest rate.
Another way to get a lower rate is simply by refinancing at a financial institution that has better rates. Many consumers have financed their car through their car dealer. After discovering their rate is too high, they will refinance their loan with their credit union that offers better rates.
Another way to lower your rate is to make sure you are aware of your credit union’s promotions. If the qualifying rate you have at the dealer is the same as the rate your credit union is offering, there may not be a benefit in refinancing. However, if your credit union is offering a lower rate or if it is running a refinance promotion where they may reduce your rate by 1% – 2% APR*, then you should consider refinancing with them.
A new, lower rate will reduce the total interest charges you pay over the life of the loan and save you money. How much can you save in interest by refinancing? It all depends on the amount of the loan, the remaining term, and your interest rate. Consumers have saved hundreds, and sometimes thousands of dollars in interest by refinancing.
There are some things to be aware of. Lowering your payment doesn’t always save you money. If you tell a lender that you are looking to lower your monthly car loan payments, they might try to do this by extending your loan term. Although you will be paying less per month, adding more months on to your loan will most likely result in paying more in interest over the remaining term of the loan. If your lender allows you to extend your loan term and gives you a lower interest rate, you may be able to lower your monthly payments and pay less in total for your car. Be careful and make sure you have them to show you how much you will now be paying in interest in comparison to your original loan.
*APR = Annual Percentage Rate.