Is Refinancing A Car Loan A Good Idea?
Did you know that refinancing a car loan can make your payments more affordable and save you money over the entire life of the loan? It’s true, however you need to make sure you do it right or refinancing a car loan could end up costing you more money.
There’s no doubt that buying a new car is an exciting and stressful time. Many people get overwhelmed by the whole thing and end up being talked into more car than they need by the salesman. They fail to focus on their own needs and end up with a high interest rate, a high monthly payment or both. If this has happened to you, there’s a way out and that’s through refinancing a car loan.
You interest rate will vary based on many variables from the dealer to the state your in to your credit score to the lender and many other things. I’ve heard reports of people getting car loans for as high as 19% APR which is insane! You might as well finance your car with a credit card at those high interest rates. Your rate can be higher or lower based on the amount your financing and the length of the loan as well, but the best way to lower your rates are to do some shopping to find the best car loan for you.
If you’re already paying a high interest rate on a car loan then you do have several options to lower that rate. The best way to do this is by refinancing a car loan. There are immediate benefits because your monthly payments are lowered, but there are also long term benefits because you end up paying less money in interest to the bank. You can literally save thousands of dollars over the life of the loan by refinancing.
Think of this; if you financed a $20,000 car loan at 11.9% you can reduce the interest rate by just 3% you save yourself $2200 over the life of the loan. Larger loans and larger interest rate deductions will of course mean larger savings and this is when you really benefit from refinancing a car loan. Remember too that you won’t be refinancing the total cost of the car loan, but just the balance due, so your monthly payments will be lower yet.
Now it gets even better, because not only can you lower the payments, but you can also shorten the length of the loan meaning your cars value will be higher when you finally pay the loan off. Cars depreciate quickly, so a years less wear on the car can put several thousand more dollars in your pocket when you trade the car in.
When you do go to refinance a car loan make sure you know how they are calculating the interest. You want to avoid a simple interest loan because in this case they will be charging you interest on a daily basis on the car loan. Find out too if you can pay the loan off early or if there is a prepayment penalty for early payoffs.
You can refinance a car loan no matter what your credit history is like so why not look into it. Even if you save just $15 a month it’s worth it because there are no points to pay on the loan like with a home refinancing. Chances are that you’ll be able to save much more than this when you refinance a car loan though.
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