Do you have a car loan?
Do you want to save money?
Do you want to lower your monthly payments?
Refinancing your existing car loan can be a wise option to save money in the long run. It is highly recommended to trade in high interest rates loan to low interest rates loan when you have a better credit rating. This will also help you to lower your monthly payments and relieve you from the financial clutches. I have tried to shed some light on refinancing car loans and the facts that will help you to make informed decisions.
Trade in high interest rates: Refinancing automobile loans become sensible when the interest rates drop. Another factor is the tenure of car loans that will help you to make a decision. If you still have only a year to complete the loan term, it is not sensible to opt for refinancing. Since you have paid most of the loan amount, you cannot save more money in this process.
Interest rates can be reduced to certain extent by refinancing it for a shorter term. If you can reduce the loan tenure by 2 years, it can save you thousands of dollars on interest rates by still having the same rate of interest. For example, if you have taken a loan for a car that values $10,000 presently at 8.9% interest rate, you will end up paying $2500 as interest amount over a period of 5 years. However, if you can reduce the interest rate to 6.9%, you can save up to $575 over the lifetime of loan. This amount can be diverted to other funds which will be very useful on several occasions.
Better credit rate and better rates: If you have repaid your existing car loan promptly, your credit rating should have improved drastically which gives better credibility. This allows you to qualify for better rates even if the interest rates have not dropped in general market. You can also improve your credit rating by reducing the debt ratio apart from paying the loan amount promptly.
Lower repayment and longer term: Reducing the interest rates is not the only option to be considered to refinance the car loan. You can reduce the monthly repayment amount by rolling over the term to extended period. However, it is important to remember that you will end up paying more when you opt for this. This option should be considered when you feel like you cannot afford to pay exorbitant monthly payments and want to get relieved. This could certainly save some bucks which can be used to pay off other bills.
The timing of refinancing auto loans is an important factor. Do not refinance at a wrong time which will not allow you to enjoy the benefits. It is important to take your time and analyze the situations after which the decision should be made.