One of the largest monthly expenses people have is their car loan. We can agree that it is a necessary expense, most of us need cars. However, the monthly loan payment can be quite a burden on many. The payments themselves might be too much of a burden, or the way the loan is financed is making it impossible to get past the interest payments in order to pay down the principal.
Does this describe your situation? If it does, you are in luck! By going through the auto refinancing process, you can reclaim your monthly budget and start to build some wriggle room in your finances. You may even start paying down that loan more quickly to where you would not even have a car payment at all!
Perhaps you are not sure if auto refinancing is right for you. Maybe you do know, but you are not sure of the benefits or the costs. Read below where we will discuss reasons to get auto refinancing and the benefits that come with it.
Did you get your initial car loan through a buy-here-pay-here dealer or a second chance auto loan? Consider an auto refinance.
These options are great for those with bad credit. It allows borrowers who might not otherwise be able to secure financing to be able to purchase a vehicle of their own. These methods are not without their pitfalls, however. The biggest cost to consider is your interest rate.
Through these financing methods, you almost certainly got stuck with a high-interest rate on your auto loan. This high-interest will cost you thousands of dollars down the road, but not if you do an auto refinance. Though you do pay a fee to refinance, if you are able to work out a better interest rate, the fee will likely pay for itself through the life of the loan.
Are you monthly auto loan payments overwhelming your finances? Consider an auto refinance.
Maybe when you bought your car you were in a great position to keep up with monthly payments but something changed. Maybe you lost your job, maybe you had a child, or maybe you began struggling with an illness. Regardless of the reason, you may now find that the monthly rate is too much to keep up with. This is a situation that auto refinancing can help!
A refinance will change the terms of the loan, including the set length. Increasing the length of the loan means that your monthly payments go down. If you have high payments because of unfavorable interest, a refinance can help you get into a better rate. Of course, if you are struggling with both, a refinance is key.
Are you simply dissatisfied with your current interest rate? An auto refinance can help!
Your situation could simply be that you are dissatisfied with the interest rate you have now. Maybe your credit has improved and you would qualify for a better rate. It could also be that there are simply better interest rates available, as they tend to vary for a variety of reasons. Whatever the reason, if you think you can get a better interest rate, an auto refinancing might be what you need!
When should you avoid an auto refinance?
Of course, before you get an auto refinance, you need to measure whether or not the cost of the refinance will be outweighed by how much you save with either better loan terms or a better interest rate. There are a few situations where a refinance would not be advantageous to your situation and may end up costing you for no practical reason.
Is your loan nearly paid off?
If it is, you should consider paying off the loan instead of refinancing. Going through the process of changing your loan terms can save you money, but you might not see those savings for as long as a couple of years. If you pay to have your car refinanced and then quickly pay off the loan, you have just lost considerable money on a process you will never benefit from.
How old is your car or how much mileage does it have?
If you plan on trading in your car in the near future, a refinance may not be your best option. When you trade your car in for a new one, the lender will pay off your existing loan and create a new loan themselves. This will give you the opportunity to work more favorable loan terms without the need for going through a costly refinance.
Where can I find auto refinancing services?
There are several different places for you to choose from if you think an auto refinance might benefit you. The first place you should start is the lender that currently holds your loan. They may offer refinancing services themselves, saving you the hassle of looking elsewhere. However, though it may be convenient, it is still best to shop around for the best refinancing rates.
If you are dissatisfied with what your current lender has to offer, consider talking to your local bank or credit union about refinancing your car. They may be able to give you more favorable terms due to the history of your business with them. You may even qualify for special discounts or perks if you have multiple loans or accounts with the same entity.
Finally, if there is nothing local that interests you, you can always shop for auto refinancing online. There are nationwide lenders and regional lenders that you can choose from, all offering different rates and services. If you want the option to shop around numerous options, shopping online is likely your best bet.
Shopping for auto refinancing can be a chore, but it is a chore that can save you thousands of dollars. If you are dissatisfied with your current auto loan, with either the monthly payment, the interest rate, or a combination of both, an auto refinance might be just the product you are looking for.
How To Refinance Auto Loans
If you are like most people, you probably have a car. If you have a car, again like most, you likely have a loan for that car as well. Many people just accept their car loan as a calculated part of their monthly expenses. However, a bad auto loan can be costing you hundreds every month.
Fortunately, if you happen to be in a situation where the rates on your auto loan are hurting you month to month, there is a way to fix it. By refinancing your auto loan, you can help ease the pressure of your monthly bills and pay off your car loan faster!
However, refinancing is not for everyone. If you have a solid loan, refinancing it will not only cost you upfront money but likely will not save you anything month to month or in the long run of the loan. The following are some situations where it would be wise to consider refinancing your auto loan.
- You know for a fact you did not get a good deal on your loan
- You used a second chance loan or bought from a buy-here-pay-here dealer
- There are better interest rates now available
- Your monthly payment is straining your finances
They say hindsight is 20/20, and that is especially true for cars, especially if it happened to be your first. If you did not have a co-signer and limited credit history, you likely got stuck with a huge interest rate. This is almost certainly the case if your first car was also a brand-new car.
Refinancing this kind of auto loan makes perfect sense. You likely have good, healthy credit now, which would qualify you for a better interest rate on refinancing a loan. This not only lowers your monthly payment but because more of your money is going towards the loan principal, you will end up paying off your loan more quickly.
These are great options for those with bad credit, but you do not have to stick to their terms forever. If you have been able to improve your financial situation and build your credit, refinancing your auto loan will almost certainly provide better rates than what these kinds of lenders initially offered you.
You may have gotten the absolute best interest rate at the time, but available interest rates fluctuate. What rates happen to be available is independent of your financial situation. If you got your auto loan when interest rates were at a high national average, it would likely be in your best interest to seek refinancing.
This is a situation that is independent of what interest rates you may or may not be able to get. If the monthly payment of your auto loan is hampering your monthly finances, refinancing it, regardless of the rate you may qualify for, allows you to renegotiate the loan. During this renegotiation, you can also adjust your monthly payment, giving your budget a little breathing room.
Refinancing, for this reason, is not without its downsides. As mentioned, you may end up refinancing at a higher interest rate, which will cost you more money in the long run. In lowering your monthly payment, though it may give you some breathing room month to month, you will end up extending the life of the loan, which will increase the total cost of the loan.
Of course, it does not always make sense to refinance your auto loan. For example, if you almost have your loan paid off, why would you go through the extra cost of refinancing it? There are other factors to consider as well:
- How old is your car and what mileage is it at? If you have a loan on a clunker that may or may not make it through the year, or you have a high-mileage vehicle that you plan on driving until it turns to dust, refinancing is not a good option for you. In general, refinancing makes sense if you have a car you plan on having for several years into the future.
- Refinancing is simply too expensive. Refinancing is not free, of course, that is why there are businesses that exist that are exclusively loan refinancers. Refinancing an auto loan may save you a nominal amount of money, but if the financial benefit is small and the refinancing fee is extremely large, it likely is not worth the cost and effort to refinance.
Of course, you may not know whether or not refinancing an auto loan would be a good decision. Talking to a professional who can handle auto refinancing would be beneficial, but you need to know where to find auto refinancing first. Here are a few options:
- Your current lender. The current entity that is holding your loan may be able to refinance it themselves. Since they already have the loan, this is one of the easier options, but it is still good to shop around. If you bought your car from a buy-here-pay-here location, they likely will not be able to refinance.
- Your current bank. If you have an established relationship with a bank already, they may offer auto refinancing options with favorable rates and low fees. Set a meeting with a loan officer and see what options they may offer.
- A local bank or credit union. If your current bank or lender does not work out, shop around locally! Other banks may have options, even if you are not a current customer. Credit unions may be able to offer favorable refinancing rates even if you are not currently a member.
- Online lenders. There are a bunch of online lenders that specialize in auto refinance. It is easy to compare rates and fees through the various online lenders, and since many of these lenders do not operate a brick and mortar location, they can offer lower fees and more favorable rates.
There is a lot of thinking that needs to take place before you refinance your auto loan. If you feel overwhelmed, start shopping for refinancers! They will have experts that can give you the rundown of what they offer so you can start determining what is the best path for you.
