How To Refinance a Car Loan


  • Refinancing a Car Loan

    Refinancing a Car Loan

    Most people don't realize how easy it is to refinance a car loan and how much money they can save by doing so. | June 27, 2013

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When interest rates drop, refinancing your car loan could save you thousands of dollars.

Say you bought a new car two years ago and there were a few dings on your credit. You might have been charged 9 percent on a five-year loan for a $23,000 car. Your payments are probably about $525 a month.

Now let's say your credit has improved, and so have interest rates on car loans. You could now refinance the balance of your car loan at 3 percent and lower your payments to about $445 a month for the remaining three years. That's a savings of $80 a month and $2,880 over the life of the loan.

Other examples could be even more dramatic. In some cases, an uninformed used-car buyer might have saddled himself with a car loan that has an 18 percent interest. By refinancing at a competitive rate, he could slash his monthly payments in half.

Is there a downside to all this? No. That's because, unlike home mortgages, many auto loans don't charge prepayment penalties or fees to set up the loan. And consumers can complete the application process online in about 15 minutes.

Car owners who are thinking about refinancing their auto loans should first locate their purchase contracts and check their term (the length of the loan), the balance (how much they still owe) and the current interest rate. This is especially easy for car owners who have their accounts online.

Many lenders offer auto refinancing. Start by checking the refinancing rates offered by your own bank or credit union. Compare your results to rates listed for online lenders and other banks on a site such as Bankrate.com.

On Bankrate.com, type in the name of your state and the closest city, and the site shows a list of lenders and their rates. Be sure to review the term of the loans, since different terms have different rates. Also, be aware that many of these lenders will run a credit check when you apply, which could have a minor impact on your credit score.

Remember, as interest rates drop, auto loan rates follow. Why throw that money away by paying unnecessary interest? Visit the Edmunds.com auto loan calculator and see how much getting a new loan at a lower interest rate could save you.

Comments

  • natdalton7 natdalton7 Posts:

    Interestesting article. I just bought a car in the last year and I definitely am what you would call the The Newly Educated Remorseful one. I am definitely going to be refinancing an auto loan. Thanks for the great info!

  • faaastcash faaastcash Posts:

    When you apply to refinance your car loan the best you can do for yourself is to alter the terms of the agreement to whatever suits you. The best time to apply for refinance is when you want to change the amount of your repayments, either making them less or paying more each month and paying the loan off sooner.

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