If you bought a car in the last year or two, you may be wondering if you can do anything about the auto loan that you're paying on. While you can't always reduce your payments, refinancing the loan may actually save you money. Before you resign yourself to paying that existing loan, here are a few things that you should understand about refinancing it.
Loan Refinancing Basics
Refinancing your existing loan basically means getting a whole new auto loan that will pay off the one you already have. One of the things that you will need to consider is what the current market interest rates are. You might be able to reduce your interest rate if they've dropped since you first bought your car. You may even qualify for a lower rate if your consistent loan payments have raised your credit score since you first took out your loan.
Loan Refinancing Steps
The process of refinancing isn't really any different from the initial loan process. You'll apply with a lender for a new loan based on what you owe on the current one. You may need to show them the details of your current loan, including the most recent bill with your payment history and current balance. You may need to supply details about the vehicle, including its age, condition, mileage, and other details. You'll also have to show proof of your income and anything else that you can use to show that you can pay the loan. Your lender will then want to check your credit history. Qualifying for a refinanced loan will require that you have a decent credit score and sufficient income for the payments. If your credit score is too low, you may not be eligible to refinance.
Loan Refinancing Benefits
There are many benefits to refinancing your existing auto loan. Understanding those benefits can help you determine if it's a viable option for you.
Saving On Interest: When you refinance your auto loan, the possibility of reducing your interest rate could help you save money on interest over the life of the loan. Since interest rates can fluctuate, refinancing at a time when they're lower than when you bought the car can work in your best interest financially. Remember that even if it only saves you $20 a month on your payment, that can add up over the life of the loan. Consider your long-term savings as much as you do the short-term ones.
Reducing Your Payments: Even if you can't qualify for a lower interest rate, refinancing your loan may allow you to extend the repayment period. When you extend the time during which you repay the loan, that can reduce your monthly payments. It may not save you money over the life of the loan, but it will help you with meeting your monthly obligations by lowering the amount you have to pay each month.
Lower Fees From The Lender: Refinancing your loan may even allow you to reduce the fees that you're paying to the lender. If you choose a lender with lower financing fees, you may be able to save money on your payments. Keep in mind that you might have to pay a title transfer fee to refinance the loan, but if you're saving enough over the course of the loan, it can offset that upfront expense.
Understanding the basics of auto loan refinancing can help you determine if it's worth doing with the car that you own. Consider the age and condition of the car to determine if it will be worth the lender investing in it. Talk with a few different lenders who provide auto loans before you commit to anything so that you know what your options are.