Refinancing Auto Loans
Car loans have hit record levels in the United States, with consumers racking up $1.2 trillion in loans. This is a rise of 9% from 2015, and now 43% of American adults owe money on a car. These loans are now outpacing mortgages, and approximately 6 million people with auto loans are at least 90 days behind on their payments. If this sounds like you, or you simply want to benefit from lower interest rates, read on to learn how refinancing auto loans can be the way to go.
Most people are refinancing auto loans to save money. Some are aiming to adjust the length of their loans. Others want to reduce the interest rate they’re paying. And some people like the sound of lower monthly payments. Another common reason? Removing a co-signer from a loan.
Here are some reasons why you may want to consider refinancing auto loans:
Interest Rates Dropped
If you purchased your vehicle when interest rates were higher than they are today, you may want to consider refinancing. For this, refinancing rates are usually considered to be used car loans, so they’ll still be higher than new car loans.
Even a couple of percentage points different can make a massive difference over the life of your loan.
You Have an Improved Credit Score
If you had no history of credit or a few problems on your credit report when you first bought your car, your interest rate will be high. But if your credit has improved since, you’ll often qualify for a much lower rate.
For people with bad credit, interest rates of 18% and higher a common. But if you’ve been paying on time for several months, you may be able to refinance at a lower rate. Check your credit score online for free to see if you may qualify.
You Made a Bad Call
Just because you had a great credit history and a high score doesn’t necessarily mean you got the best possible rate. It’s common to be so excited about a new car that you overlook a few key terms and conditions.
Vehicle loans from dealers often have higher rates simply because consumers don’t know any better. If you find out that you’re paying more than you should be, it makes sense to refinance.
You’re in Financial Trouble
If your personal finances have deteriorated, you may need some help keeping your head above water. It’s common for people to get financing for a vehicle and then suffer a financial setback. This often means that you’ll need to reduce your payments. By refinancing, you can increase the term of your loan, which lowers how much you would pay each month.
This happens to those with low income all the time. Sometimes a relationship will fail, and a single mom can’t pay her loan. But she needs the car to get to work.
Other people don’t understand how credit works. They’ve never had it before, and they’re so thrilled that all they need to get a car is sign on the dotted line, even when the interest rates are ridiculous.
The scariest part? If you get your car repossessed, not only will it impact your ability to get another car, but you may not be able to sign up for utilities or even get affordable housing.
No matter the reason you’re thinking about refinancing, it’s important to understand how it works and the potential outcomes.
How Much Can You Save By Refinancing Auto Loans
There are a few different options for refinancing auto loans. One of these is refinancing through a credit union. You’ll need to open a savings or checking account if you’re not yet a member.
Refinancing can save you big money. If you took out a $25,000 loan at 7.75% over five years and refinanced after a year here’s what you could be saving:
- Refinancing at 6.75% for four years = $9.33 a month ($488)
- Refinancing at 5.75% for four years = $18.88 a month ($906)
- Refinancing at 4.75% for four years = $28.60 a month ($13,73)
Video – Auto Loan Refinancing Tips
Are You Eligible for Refinancing?
Refinancing isn’t always an option. If your vehicle is worth less than the balance of your loan, lenders are unlikely to lower your interest rate.
You can check the current value of your vehicle through:
There are a few other things that lenders will consider. These include how much you have left to be refinanced, and the age of your vehicle. You should also check if there are any penalties if you pay off your loan early – otherwise, it may not be worth refinancing.
Your lender can provide you with the current payoff amount of your auto loan. That’s how much you’ll need to apply for when you’re refinancing. You’ll also compare this against the value of your vehicle to see if you can refinance.
You can refinance at any time from when you first get your original loan. In fact, auto loans are structured so that you pay off most of your interest during the first half of the loan’s term. So the sooner you refinance, the more you’re likely to save.
Applying for Refinancing
The application process for refinancing auto loans is relatively straightforward. You’ll be given a decision quickly, with some lenders letting you know if you’re eligible within 24 hours of your application.
Most lenders will allow you to either call for more information or submit an application online. Be sure to shop around and compare interest rates. This will ensure you get the best possible deal, saving you money in the long-term.
Ready to Get Started?
If you have an auto loan, it’s well worth seeing if you’re eligible for refinancing. This is one of those smart financial decisions that can seem difficult at the time but is actually straightforward and easy. It’s also an excellent choice if you’re hoping to secure a great financial future.
Do yourself a favor and put the money you save straight into your savings or Roth IRA.
Have you refinanced your auto loan? Thinking about refinancing in the future? Let us know in the comments section below or check out some more auto finance tips today.
Get Control of Your Credit With Our Free Ebook
* indicates required