Refinance a Car Loan: Things To Know

If you need to consolidate debt or free up some extra money each month, you need to know how to refinance a car loan. Essentially, this process involves the trading in of one loan for another, usually for a more favorable interest rate. By doing this you will lower the monthly payment you make on your car loan and you will save money in the long run in interest charges. There are some things to know about car refinance that will help you make a more informed decision about this valuable service. It may or may not be for you, but you owe it to yourself regardless. Keep in mind:

Car refinance can work for either new or used cars, but if the car is used, it has to be less than five years old. Other conditions that may apply have to do with your current loan. You have to owe at least $7,500 and not be upside down on the loan. Being upside down means you owe more on the car than it is worth. There may also be mileage limitations on the car to be eligible for refinancing.

Auto loans become troublesome because of high interest rates. When you first purchased your car, you may have received a high interest rate, perhaps because you were a first time buyer or because your credit rating was not very good. This high interest rate translates into a high monthly payment, and that increases the amount of interest you will pay over the life of the loan. By refinancing, you pay off the first loan with a second loan that has a lower interest rate, sometimes drastically lower. Not only does this reduce your monthly payment, but it can save you hundreds if not thousands of dollars over the long haul.

When you are wondering how to refinance, reading this already puts you half way there. Search for car refinance online and you will find any number of lenders willing to process your car refinance loan application. One of the benefits of applying online is that you receive several quotes from third party refinance specialists. Unlike banks or credit unions who give you their quote only, a third party lender will offer several to choose from, giving you the ability to pick the best one for your situation. In addition, there are no obligations to continue once you receive these quotes. If you decide the time is not right, you do not have to commit.

There are several things to know when you refinance a car loan. It can be a confusing process mainly because of the many unfamiliar terms. It behooves you, however, to familiarize yourself with them and to carefully read through every term and condition that comes with your refinance package so you are not taken by surprise. If you do that, you will find that car refinance has much to offer by way of savings, both monthly and long term. You can consolidate debt by taking out a refinance loan with a lower interest rate. Even if your credit rating is not the best, car refinance is still within your reach. In fact, it may even help to improve your credit, saving you money at the same time.

What Is Car Loan Refinance?

Car loan refinance is essentially trading in one car loan for another with a more favorable interest rate. When you finance a car, you are taking out a loan to pay off the amount not covered by your down payment. This is usually all of the car's price. Depending on many factors including credit score, down payment and other pertinent financial information, you'll receive an interest rate on the loan you take out, which is a percentage of the loan calculated annually. It is also known as the APR or annual percentage rate. This rate itself is broken down into even tinier fractions and accrues on a daily basis. Interest rates are some of the least understood elements of finance, and probably for good reason, because they are a source of profits for whoever is lending you the money.

Car loan refinance can help mitigate some of the monthly cost by getting you a new loan with a lower interest rate, saving you money over time. A car loan calculator will tell you how much interest you will pay over the life of your loan. With this information, you will get a better idea of the money that is tacked on to the price that is advertised. Interest is how lenders make their money, but refinancing lenders can ease the pressure somewhat by lowering the rate.

Take an example: Say you buy a car for $15,000 with zero down. So you have to borrow the entire amount. Maybe your credit rating is not great, so you receive a 12% APR over 60 months. Based on this, your monthly payment will be $334 and you will pay over $5,000 in interest over the 5 years. Thus, the real price of the car is over $20,000.

By refinancing, you can alleviate this to a certain degree. By paying your monthly payments regularly and on time, even with bad credit, it will improve over time. Say that you have paid off the loan down to $10,000. You decide to refinance, and after the application is approved, you receive a new rate of 7% for 60 months. Your new monthly payment will be $198, and the amount of interest paid over the life will be less than $2,000. Of course, you can refinance for a shorter amount of time, paying more per month but less interest. There are many combinations that can work for car refinance. You have to find what is right for you.

Refinancing your car loan is a great way to save money each month and consolidate some of your debt. All parties are left happy because your original lender gets paid off, your new lender is earning a little interest from your loan, and you are paying less each month. Car refinance is a win-win-win situation. If the time is right and you meet the conditions, it is never too late to apply.