Auto Refinancing: The Secret to Saving Money on Your Car Loan

It’s common for people to refinance a home in light of new favorable conditions, but you don’t often hear people talk about refinancing a car.  There are some good reasons to take a look at auto refinancing, and all of them have to do with money.

One scenario in which auto refinancing makes sense is when interest rates are dropping.  If during the summer of 2007 you financed a car loan at the height of the years of hikes in the Federal Funds rate, you may find 2009 a good time to refinance, especially if the drop in rates is followed up with further cuts in auto loan rates.

In the face of much lower interest rates, numbers of people are refinancing their existing car loans by turning to their banks or web sites to lower their monthly car payments and save a good deal of money in the long term.   Your bank is always glad to see you, but other banks are even more thrilled.  Web sites like selectautorates.com provide competitive rate comparisons for all kinds of loans, including car loans.  It’s worth a look just to get a frame of reference for what you will hear when you reach the bank.

Auto loan refinancing is also a good option for people who have had credit problems and ended up paying a high interest rate on their loan.  Most people don’t realize there are banks willing to help customers lower their car payments if their credit has improved.  For someone with a high APR (annual percentage rate), this could mean saving thousands of dollars over the term of the car loan.

To determine if refinancing a car loan is a good move for you, take a look at the amount of time left on your car loan and the interest rate on your loan. Chances are good the move will make sense if you still have a few years or so to pay off the loan and you can end up saving a significant of money.

Some of the other terms of the loan can be changed at the same time.  If you are pleased with the car and it has held up well, you may want to stretch out the remaining term of the car loan, which combined with a lower rate will give you a substantially lower payment.  Conversely, you may want to pay a greater amount each month because you can now afford more money, and with the lower rate you can really reduce the term or length of your car loan.

Another refinance scenario sees you comfortable with your interest rate but wanting to reduce your monthly payment on the auto loan.  In this case the best plan of action is not to refinance your auto loan but to extend the term of your payment agreement, so that you can minimize monthly car payments.  Of course this means that over an extended period of time you will spend more money on the interest on the contract over the life of the auto loan.

When you refinance, it is possible that you can do it with the lender who already has your car loan.  If you refinance with a different lender, the new lender pays off the original loan in full, and the title to your car is then transferred from the old lender to the new one.  There may be additional fees requested by the auto lender, but only one fee is required by law, and that is the Title Transfer Fee.  If someone asks you for more than that, you are better off with someone else.

Be careful when choosing a new auto lender.  There are numerous refinancing schemes out there and you want to deal with someone who is credible and wants to work with you on a legitimate basis.  If car lender or bank offers you something that seems too good to be true – like the ability to skip the first payment or two – that probably is too good to be true.  In a case like that it is likely that the interest compounds when you skip the payment monthly auto loan payment, and the loan becomes even more expensive than it already was.

Always compare the offers of a number of auto lenders and ask questions.  Enlist the help of a friend or a coworker or a family member to go through the process with you.  Be thorough and get some help, and you will get the best result.

Tags: auto loan rates, auto loan refinancing, car loans

This entry was posted on Wednesday, January 28th, 2009 at 10:55 am and is filed under Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.