You might be familiar with mortgage refinancing and the benefits, but did you know you can refinance auto loans? After you get a car loan and drive off the lot, the financing terms you agreed to may never cross your mind again. That would be a mistake, as even a small change in interest rates could save you thousands.
The flexibility of auto loans makes refinancing extremely simple. Usually there are minimal fees and only minor paperwork. Getting the best interest rate could help you lower your monthly payments and pay off your loan quicker.
Benefits of Auto Loan Refinancing
When you refinance auto loans the benefits are similar to mortgage refinancing. One of the primary advantages of an auto loan refinance program is the reduced monthly payments. Not to mention, lower interest rates will help lower the cost of ownership over the life of the loan. Find out how much you could save with our Auto Loan Calculator. The results may surprise you!
Taking the extra effort to refinance may be well worth the time spent to complete the paperwork and pay off your previous loan. In fact, this process may encourage you to contribute more toward your monthly payment now that your money goes farther.
Reduced Monthly Payments
Even a small change in your monthly bills can make a big difference in your financial situation. Imagine refinancing your auto loan and having extra spending money each month. You could save money and give yourself extra breathing room.
Refinancing to a lower interest rate can help reduce your monthly payments. If your reduced interest rate will just slightly bring down your monthly payment, extending your repayment period could help too. While this is an attractive option for anyone having a hard time making their payment, it will also increase the cost of the loan.
Lower Cost of Ownership
With gas prices still on the rise, it’s getting harder to make your dollars stretch each month. Not to mention, commuting costs, parking and maintenance expenses keep growing too. Especially as your car gets older, you will need to invest more to keep it running.
By refinancing your car loan you can lower the cost of ownership over the life of the loan, potentially saving you thousands in interest charges. Reducing your monthly payment when you refinance auto loans could help you keep your car running for longer. While many of us don’t like to admit it, the cost of car ownership should have a bigger effect on our car purchasing decisions than it currently does. Unfortunately, this is something that many fail to recognize until it’s too late and they are facing a stack of auto repair bills.
When to Refinance Car Loans
Even if you don’t follow auto loan interest rates closely, you might want keep your eyes open. But, you should know that there are other ways to refinance auto loans even when interest rates are steady. For example, if your credit score has dramatically improved since you purchased your car, you may qualify for a better rate.
Also, if you’re having a hard time making payments refinancing into a longer term loan at a better interest rate could help you when times are tough. Taking advantage of interest rates when they drop is a great way to save money when the economy is working in your favor.
Improved Credit Score
An improved credit score can help you qualify for a lower interest rate and better loan terms. A great place to start before looking to refinance auto loans is with a simple credit check. Today there are a number of websites that offer free credit reports and credit scores.
If your credit score has improved since you applied for your car loan, you may qualify for a better rate.
Overtime your credit score will improve as you pay down debt, increase your available credit and continue to make payments. Certain financial events remain on your credit report for a long period of time, such as bankruptcy, may have been removed since your purchased your car. This could cause your credit score to change as well.
Check your credit score to see if you may qualify for a better auto loan rate online.
Lower Interest Rates
When interest rates drop it’s time to take advantage of low cost of financing to reduce your monthly payments. As the economy began to slow down, consumers cut back on purchasing new cars or upgrading to the latest models.
While families found ways to save money by keeping their cars running longer, banks still needed to make money by guaranteeing loans. Interest rates were lowered, but credit restrictions were increased.
Although many say the economy has finally turned around and interest rates are expected to rise again, low interest rates are still available to those that qualify. This drop in interest rates can save borrowers that wish to refinance potentially thousands in interest over the life of the loan.
Personal finance experts believe that even as little as a one percent change in interest rates can make it worthwhile to refinance your car loan. The savings will amount to several hundred dollars and it may only take an hour or two of your time to complete the loan application process, from start to finish.
Difficulty Making Payments
Even when you find yourself in tough financial circumstances, auto loan refinancing may be the answer. As we covered earlier, when you refinance auto loans it gives you the advantage of lower monthly payments, extended repayment periods and reduced interest charges.
With the availability of financing alternatives on the internet you may qualify to refinance your auto loan even with less than perfect credit. Today there are many bad credit auto loan companies available to help you get through difficult times and continue making your monthly car payments. The options are out there, but you must make the first step to get help. We’ve included a few places to start your search for auto refinancing help.
Where to Refinance Auto Loans
If you thought the only place to refinance auto loans was with your original lender, you would be mistaken. Don’t worry, many people don’t realize there are other options available for auto loan refinancing. Among the most popular are peer to peer lending sites, online lenders and home equity lines of credit. Below we cover each way to refinance auto loans in more detail.
Peer to Peer Lending
Peer to peer lending is a new type of financing that connects individual lenders to borrowers looking for unsecured personal loans. These loans require no collateral, such as your car title, and have very low interest rates. An unsecured personal loan means that there is no risk of having your auto repossessed in the event you have difficulty making your payments.
On the other hand, unsecured personal loans typically have higher interest rates than standard auto loans. To qualify for the lowest interest rates you must have excellent credit and have a stable income and credit history. Don’t let this deter you though, as people just like you are getting approved for loans from peer to peer lending sites everyday.
It can be overwhelming comparing auto loans online. How do you know which lenders to trust?
While there may be many companies ready to handle your loan, when it comes time to refinance auto loans, there are only a few you should trust. One of the most popular auto loan companies is Capital One. They have a strong reputation for providing excellent customer service and they work with a large network of car dealerships nationwide.
When applying for refinancing there are certain things to keep in mind. Online lenders will not approve your loan if you are currently late on your monthly payments. They will also verify your credit score and review your credit history. As we mentioned earlier, if your credit score has improved recently this may help you negotiate a better interest rate. On the other hand, if your credit score has deteriorated you may not qualify for auto loan refinancing.
Lenders may also require your vehicle mileage and VIN number as well as various forms and paperwork. Online lenders have made this process simple and most steps in the loan application can be completed online.
Home Equity Line of Credit
If you’re a homeowner, you may be sitting on an inexpensive way to refinance your auto loan. Home equity lines of credit (HELOC) often have the most attractive interest rates available because the loan is secured by the home. Homeowners typically have high credit scores, making a HELOC a low risk loan for most banks.
In addition, getting a line of credit to refinance auto loans is as simple as contacting your mortgage company. Another advantage of refinancing car loans with home equity is that your monthly payments are now consolidated with your mortgage payment. Your car is completely paid off and now you just make your payments to the mortgage company instead.
The major drawback that must be pointed out is that if you are unable to make your monthly payments the bank will foreclose on your house. If you are having difficulty making your car payments, a home equity line of credit could put your house at risk instead of just your car.
Are you a new homeowner or have very little home equity? Consider our HELOC alternative and get a home loan with no equity required!
As we covered there are many ways to refinance auto loans. Of course, the refinancing route you choose will depend on your financial situation, goals and credit history.
Some experts believe it is always smart to refinance when rates change because the savings could add up quickly. Refinancing your car can help you lower your monthly payments, pay off your loan faster and save you thousands in interest charges.
Now it’s your turn. Are you considering the benefits of auto loan refinancing? Feel free to share you story with our community below!