There could be many reasons for asking yourself this question, but are you finding that your monthly car payment isn’t as affordable as you once thought it would be? If the answer to this question is yes, here is something else to ponder: Did you know that you can refinance that car loan?
Surprisingly, many people don’t know that this is possible, but it is. While there are different ways to accomplish the same objective, true refinancing of a car lien is very similar to refinancing a home mortgage. Basically, the remaining principal can be refinanced at an interest rate lower than your current one. The creditor pays off the existing balance, and a new set of payments is initiated at the lower rate. Depending on how expensive the vehicle in question is or how high an interest rate you‘re currently paying, this can result in a savings of thousands of dollars. At the very least, it frees up cash for other essential necessities.
Before seriously considering such a move, it’s important to keep something in mind here. Unlike banks in particular that refinance their own home mortgages when interest rates fall, most places that finance car purchases won’t. What this means is that you’ll likely have to seek a different lending institution to pull this off.
Unlike home loans, it also doesn’t matter how much the car is currently worth, either. Such a loan is instead based strictly on what the car cost to begin with, how much you’ve already paid into it, and how much is left to satisfy the original purchase price. Thus, no appraisal is required. You’d probably get disappointed, anyway, because unless you have some hot collectible ride, your car has depreciated in value. Conversely, home values typically increase.
Refinancing a car loan is especially advantageous to those who had to settle for a ridiculously high rate to begin with. Suppose you had no credit or bad credit, and the only way you could get into that car was to pay a rate of 21 percent. Assuming that some time has passed and payments have been diligently made every month, your credit rating has improved. It’s quite possible that your improved credit standing will enable that interest rate to be cut in half, or perhaps even less. Even on a modestly-priced car that initially cost around $17,000 after the “dust” of tax, title, and license fees settled, a 10 percent reduction in interest would equate to around a $100 savings each month. If you had 24 months left on the loan term, this would render a $2400 savings!
Even if your credit was in good standing to begin with, other situations could arise. Perhaps you’ve purchased a home or learned that a child is on the way. Maybe the dealership charged a decent interest rate, but you’ve since discovered that you could have done better elsewhere. Finally, you may have taken the loan out for a short-term, but now need to stretch it out for some of the reasons above. A word of caution here: Be advised that even if you get a few points reduced in interest, you could still end up paying more in the long-run by extending that term, even if your monthly payment is reduced. In this scenario, you must decide whether your current budget justifies this. Put simply, the longer the term, the more cash outlay.
Whatever your financial situation may be, refinancing that car loan is well worth looking into. Should you decide to check this option out, three places can provide the specifics. They are, in no particular order: UP2Drive.com, Capital One Auto Finance, and Bankrate.com.
If you can save money on that car loan, go for it!