Should You Refinance Your Car?
With the great economic downturn, millions of families have had to
find ways to cut their expenses in order to live on less income.
But only few think of reducing their monthly car payments by
refinancing their car loan.
Refinancing your car can save you thousands of dollars. It is a
great way to get out of a high-interest auto loan and boost your
The asset, that is your car, does not need to be appraised in order
to be eligible for refinancing. There are, however, some factors to
consider before refinancing your car.
The best time to refinance your car is when you have earned a higher
credit score. That means you should strive to make timely payments
even if your current loan is quite a burden.
But what if you still have an unimpressive credit? Is it still
possible to refinance your car?
Debt advisers say that lenders usually accept medium credit for auto
loan refinancing programs. If you still have bad credit, refinancing
might not be the best way to cut your car expenses.
Refinancing your car loan with bad credit only to get a high
interest rate again does not make sense. Work on your credit now so
you can successfully refinance your car loan in the future.
Lower Interest Rate
One of the main reasons why you will refinance your car loan is
because you want to get a lower annual percentage rate or APR and
save money in the process. Therefore, do not refinance if you will
not be able to get approved for a lower rate.
The lender, however, might allow you to extend the loan term to
lower your monthly payment. But this is far from ideal. You will
just pay more for your car over time.
If you are planning on refinancing your car in the future, start
monitoring the interest rates now.
is a good source for that.
Extended Repayment Period
Refinancing does not make sense when you will only have to extend
the term. Opting for a longer loan term does lower monthly payments,
but not really the total cost of the loan.
Keep in mind that cars are depreciating assets. Extending the loan
term would only put you at high risk of being upside down on your
Here’s what experts have to say: If there are only 2 years left on
your current loan, forget about refinancing and finish it instead.
The only time it might make sense in this case is if you have
serious cash flow issue.
Did you ever bother checking whether the loan agreement you signed
has a prepayment penalty clause?
The prepayment penalty is charged when you complete your payments on
the loan ahead of the schedule. There can be more than a couple of
reasons why some lenders do this. But one of them is to secure the
profit they make from the interest you pay.
In any case, it might not be so smart to refinance your car loan if
your current lender will demand payment for an
The penalty can be a hefty amount and forfeit your purpose for
refinancing your loan.
Before anything else, talk to your lender about you plan. You have
to let the company know so they can also assist you with the
paperwork and your transition to the new loan.
Tips for a Successful Auto Refinance Application
Here are some pointers to keep in mind when seeking approval for car
- Make sure that the pieces of information you provide for your new
loan are accurate and consistent with the ones you provided for your
- The auto refinance amount must not be more than the current value
of your car.
- Avoid abusive deals by checking up on your credit before
refinancing your loan. A lot of lenders these days take advantage of
people with less-than-ideal credit. Don’t let them charge you over
and beyond what you deserve by knowing your real credit situation.