Refinancing an auto loan is a strategy that is sometimes viable, especially if the car owner can lock in a better rate of interest or possibly restructure the monthly installment payments to make them more affordable. As with any refinancing effort, there are a few tips to keep in mind, including the calculation of the amount of savings that will result, any fees or penalties that may apply to early settlement of the current car loan, and any fees that may be applied to the creation and servicing of the newly refinanced loan. Refinancing an auto loan should only take place after determining that the refinancing will help the car owner achieve his or her goals.
Before refinancing an auto loan, it is important to define just what will be gained by the effort. Typically, the main idea is to lock in a rate of interest that is superior to the rate that applies under the terms of the current loan. Use a loan calculator to determine how much savings would result from the refinancing, assuming that the refinanced loan does not include a longer duration than the remainder of the current loan. The result of that calculation will make it easier to decide if refinancing is worth the time and effort.
Should the main goal for refinancing an auto loan be lower car payments, it is still important to go for the lowest possible interest rate. Doing so means that even if the refinanced loan does not add more payments to the agreement, there is still a good chance that the lower interest rate will translate into lower monthly installment payments. If the goal is to stretch out the payment term and enjoy lower monthly payments, take the time to determine the difference between the current car payment and the monthly payments under the refinanced plan. Unless the difference is enough to make an impact on the household budget, the effort may not be worth it.
Once it is determined that refinancing an auto loan is worth the time and effort, compare the offerings from several different lenders, including the current lender. Assuming that the relationship with that lender is positive, there is a good chance that the refinancing can be managed with relative ease. Before making a commitment, gather quotes from several different lenders and compare all the terms and conditions very closely. Doing so makes it possible to identify the best refinancing deal available, allowing for both the interest rate and the contractual provisions.
