Many people believe they are locked into their auto loans once they get them, but this is not true at all. Like a home loan, you can refinance your vehicle note to get better terms. The question is, though, should you go through the trouble of doing it? Here are two reasons why refinancing your auto loan may be a good idea.
You May Qualify for a Better Interest Rate
Possibly the top reason to refinance your auto loan is to reduce your interest rate. In addition to paying less over time for the money, a lower interest rate can result in decreased monthly payments. This is a great way to make more room in your budget if you have suffered a financial setback (e.g. job loss).
However, you should only consider refinancing if you'll see a significant reduction in the rate. For instance, if you took out the loan when you had poor credit, refinancing when your credit improves can lead to a drop from a double-digit interest rate (subprime borrowers pay an average of 10 to 13 percent for auto loans) to a low single-digit rate (e.g. 4 to 5 percent for people with good credit). This can save you thousands of dollars in interest payments and make the process of refinancing worth the effort.
Shop around to see what type of interest rates you qualify for to determine if you can do significantly better than your current loan terms. You can talk with a professional like US Community Credit Union for more information.
You Want to Lower Your Payments
While lowering your interest rate will typically reduce your payments, you can also obtain the same benefit by extending the length of your loan. Many vehicle loans are for 60-month terms, meaning you get five years to pay back the money. When you refinance your vehicle, the clock is essentially reset, and the balance on your account is stretched out over a new 60-month term.
This is a good option if you're struggling to make your monthly payments. Instead of risking repossession and the associated negative hit to your credit report, you can refinance the vehicle to make it more affordable. Additionally, there will typically be a gap of time (e.g. 30 days) between when you pay off your current loan and when you must make a payment on your new loan that can provide some breathing room to take care of other bills.
The ability to refinance an auto loan is a great tool to have in your financial arsenal. For more information about this option, contact a local lender.
Share13 April 2017
When I began my first business selling sports equipment locally, I knew the sports-world well, and I knew how to run a business. One thing I did not know a lot about was the financial world. I had never applied for a loan in my life other than when I financed my car with the dealership in-house financing. My first application at a large bank was denied. I began looking into my other options, and I found that there were more lenders for new businesses than I realized. I applied at local credit unions, local banks, and other business lending services. I was able to secure more funding than I even expected, and my credit is just average. I created this blog to help other new business owners realize that there is funding out there. You just have to find it and apply! Don't give up on your dream.