Benefits Of Refinancing A Car Loan
If you are in the market to refinance your car to save money or you are just interested in lowering your monthly payments with a lower interest rate on your auto loan, you should first look at the benefits and disadvantages of refinancing a car loan.
Refinancing usually means that you will transfer your car title or ownership from one creditor or bank to another. As long as you are still paying for a car loan you have the option to refinance and get a lower rate. For instance, if your Credit report or FICO score moves up a notch, perhaps 25 to 50 points, that could translate in a huge reduction in the interest you will pay.
If a car buyer with a credit score of around 550 was to purchase a new car with a 48 months loan the interest rate could be as much as 18 percent. However, after a few months of credit repair the car owner credit score move up to 630, applying for refinance on the car loan could result in an interest rate reduction to as low as 12.49 percent.
A reduction in an interest rate of 1 percent or more could mean a dramatic decrease in monthly payments and interest expense. To better achieve the lowest interest rate on refinancing, car buyers are advice to shop around.
Online companies like LendingTree and CarDownLoan can help you find the best refinancing deals from a number of financing companies. Other lending and auto financing companies like Eloan, Credit.com and Bankrate provide extensive financial advice.
One of the largest online auto finance lenders in Capital One. The company offers great rates on refinancing and the refinancing process is quick and easy. If you are approved for refinance by Capital One, the company will send you a check which you will use to pay off the current lender.
There are two main benefits or advantages of refinancing your vehicle: A reduction in monthly payments, which results in the overall decrease in cost of the vehicle. For example, if a car buyer owes $20,000 on a new car financed with a 48 months loan at 10 percent, assuming fairly mild credit, the monthly payment will be $547, given that the sales tax will be around 8 percent. Total payment will be $26,295. If the loan could be refinance at 6.5 percent, the new monthly payment will be $512.
Due to the refinance the car buyer now have the option of payment of the loan in 45 months instead of 48. If the desire of the borrower is to lower the monthly payments then he / she can just pay the $512. However, if you are interested in lengthening the time of the loan in order to pay lower monthly payments you will end up paying more in the long term. Lenders usually limit refinancing availability for older, used vehicles, particularly vehicles with lower resell value.
This is because the worth or collateral value of the vehicle diminishes with time. Therefore, it is advisable to refinance during the early part of the loan rather than the end. Because interest payments on loans are front-end or front-loaded, meaning the buyer pays for most of interest in the first half of the loan a reduction in interest rate at the onset will have a more dramatic positive effect on the loan amount.
There are caveats and rules in loan contract that include penalties for refinancing or paying of loan early. Car owners interested in refinancing should ask lenders whether there is a pre-computed loan penalty. The pre-computed loan states that the buyer should pay the sum of principal and interest irregardless of an early payout.
Although these kinds of loans are not usually the norm, they do exit and car owners should ask. Also, ask about lien-holder fee which ranges from $5 to $10 and re-registration fees, which are around $60. In addition, ask about refinance fees.
Some car owners have the option of applying for a home equity line of credit (HELOC) to pay for the loan. With a HELOC monthly payments will be much lower than auto refinancing because your auto loan is tied to your home.
This option, however, is for the prudent auto lender as tying your auto loan with your home equity could result in loss of your home if payments are not made
