Are you paying more than you should on your car payments? If you took out a loan to pay for your car, it’s a good idea to consider whether refinancing that loan could save you some money. Whether it was three or five years ago, the conditions under which you took at that may have since changed, and there could be a cheaper way to pay.
When You Should Consider Refinancing?
There are a few circumstances that may be different for you today than from when you took out your auto loan that may be a good reason for you to refinance.
Low Interest Rates: If the interest rate you are currently paying on your loan is higher than an interest rate you could get today, then you should refinance. According to consumer credit data from the Board of Governors of the Federal Reserve System, a 48-month new car loan from a commercial bank in February of 2008 had an interest rate of 7.27%. The same type of loan in February of 2012 cost 5.07%. Interest rates have been declining in recent years, so it’s likely that you can get a lower interest rate today by refinancing. To see what sort of interest rates you can get today, check out Bankrate.com.
Improved Credit Score: Your credit score is a number between 300 and 850 that’s based on your past credit history and represents your creditworthiness. The higher the number, the more creditworthy the person is. Interest rates are determined by your credit score. If, for some reason, your score has improved since you took out the loan, you might be able to get a lower rate. Run a credit check to determine your current credit standing. There are many websites where you can check your credit report for free.
(Also read: Easy Tips For Building Up Your Credit Score.)
Change In Financial Situation: If you recently experienced a significant change—either good or bad—in your financial situation, you might want to consider refinancing. A financial setback, like job loss, lower income or a big financial expense that ties up your finances, could impair your ability to make full payments on time. As long as you have strong credit, you may be able to refinance your loan and lower your payments, either by taking out a longer loan, or securing a lower interest rate. On the other hand, if you get a promotion or find that you have more money available, you might want to increase your payments in order to pay off your loan sooner, and pay interest for a shorter amount of time.
How To Get The Best Deal
So you made the decision to refinance your car loan. That’s just the first step. In order to reap the benefits of refinancing, there are a few more things you need to do first.
Know Your Stuff: Read your monthly statements and make sure you understand your current loan terms before you refinance your loan. You’ll need to know your current interest rate, as well as your remaining balance.
Shop Around: Don’t settle for the first low rate that you’re quoted. Shop around with multiple lenders, getting multiple quotes and then decide which one is best for you. If you don’t have the best credit, you might consider a credit union or smaller bank instead of a larger bank or auto refinancing company.
Don’t Forget The Fees: Lending companies usually do not charge a fee to apply for auto refinancing. However, there may be some fees associated with the actual refinancing, such as transfer of lien holder fees and state re-registration fees. These fees should be minor compared to the amount you save, but make sure you know what they are before you do business with a lender.
Understand The Requirements: Lenders usually have certain requirements for providing loans. These can vary among companies, but some requirements could include an age minimum, a valid driver’s license, a salary minimum, and proof of current auto insurance. Make sure you meet the necessary requirements before applying for a loan.
Do The Math: If you have selected a lender and determined new loan terms, do the math to make sure it will save you enough money to be worth the hassle. Add up your remaining loan balance, your total new interest rate payments and any other fees associated with the refinancing. Calculate the same for your current loan and compare the costs to determine whether refinancing is right for you.
Ready to get started? Shop around and see what interest rates you can get on sites like Bankrate.com, Edmunds.com and AAA.com. Most banks, like Capital One, Chase, Bank of America Merrill Lynch and others also offer auto financing services. Check with your bank to see what kind of programs they offer. And don’t settle with the first rate you get—make sure you have a broad idea of what’s available to you before you decide which is best for you.