Are you unhappy with your current auto loan? You’ve been making payments, but the interest rate or your monthly premium is too high (or maybe both are too high). You should consider refinancing. Refinancing isn't just for bigger purchases with longevity, such as a mortgage. Auto loan refinancing has the potential to save you thousands over the term of your loan.
For example, if you have an auto loan for $20k at an interest rate of 6 percent to be paid over 60 months, you will pay around $3,200 in interest alone if you make the minimum monthly payment for all 60 months. However, the same loan amount to be paid in the same time frame at half the interest rate (3 percent) will save you $1,300 over the life of your loan! You just have to decide if the savings are worth the additional paperwork of refinancing. And, we think they could be!
If you answer yes to any of the following questions, you may want to consider refinancing:
- Do you want a better interest rate? Interest rates fluctuate each year. If interest rates have dropped across the market since you bought your vehicle, and your credit health has stayed the same or improved, you may be a good candidate for a better interest rate.
- Do you want/need lower monthly payments? If you are having a difficult time making your monthly payments, you may want to consider refinancing to have the option of extending your loan. This will mean you'll have the loan for a longer period, and it will cost you more in interest in the long run, but you will be able to make lower monthly payments. Just be advised if you make this decision that you will save in the short term but the longer-term consequences will mean you are paying off your car for much longer which means that the debt to depreciation rate will be unbalanced.
- Can you refinance without penalty? Some loans have a prepayment penalty clause which means you will receive a penalty for paying off your loan earlier than your negotiated term. As long as there is no clause stipulated in your contract, it won’t be difficult to refinance your current loan.
If your credit health has improved, you’re not currently upside down in your existing loan and interest rates are on the decline, it could be the perfect time to search for a new loan. Refinancing may take a little research, but in the end it can give you better payment options and save you money long-term!