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If you are stuck in an expensive car loan, you can get out of it. Refinancing car loans has become very easy to do. There’s plenty of competition, and consumers can find some good deals. The interest rates I found on refinanced auto loans were comparable to, and in some cases lower than, new car loans. But there’s a bit of a trick to this trade. That is, it doesn’t work for all borrowers. And a refinanced auto loan might be a big money-saver in the long run, but those monthly payments won’t drop dramatically. It all starts with the deal you make when you buy a car. Many people don’t do this well. “We find that people get disoriented by the new car smell and make a really silly financial decision,” said Allan M. Prindle, president and chief executive officer of Power Financial Credit Union. They don’t shop around. They don’t look beyond the monthly payment. They get sold something, rather than select the best loan.
And there’s this: “Possibly the dealership overcharged you. They added a point or two of interest to people who deserved a lower rate,” said Phillip Reed, senior consumer advice editor at Edmunds.com, a Web site devoted to car shopping and information. Greg McBride, senior financial analyst with Bankrate.com, says refinancing a car loan makes sense if you can accomplish two things. “You have to substantially reduce your interest rate and not stretch the term beyond what’s remaining on your existing loan,” he said. Refinancing works best for someone who has improved his or her credit rating since taking out the loan. That person could transform a high-interest-rate loan taken out during bad credit days into a loan with a lower rate. If you think you might benefit, here are a few things to look for. Penalties, or something called an “early payment fee” for paying off your existing loan, need to be considered as part of any refinancing plan. Did I mention this is sounding like a mortgage? You may have to spend a little money to transfer the lien to your new lender. Stop and think about the financial consequences before you are tempted to buy another car. Many people keep their cars for only two or three years, Prindle says, and roll over any amount they still owe into a new, bigger loan so they can get a new car. That kind of move, adding debt to debt, isn’t ever going to get you ahead of the game. The rewards of refinancing, in the long run, can be significant. A friend of mine has a $20,500 balance on her car loan, at 11 percent interest, for 60 months. If she qualified for Power Financial’s lowest current rate of 5.74 percent, she’d bring her monthly payments down from $435 to $393. That may not seem like much, but the interest savings over the life of the loan would be $2,500. That could go a long way toward a down payment on her next car. Harriet Johnson Brackey | Personal finance Refinance your Auto Today! Get a Gree Quote at Estreetloans. 4 Comments for 'Refinancing a Car Loan Can Save You Down the Road'Leave a comment |
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