Refinancing an auto loan is often overlooked as a way to reduce monthly bills. Since a car is usually a consumer's second-largest purchase next to his home, refinancing to a lower interest rate can result in substantial savings over time. To obtain the best rate available, it is best to get quotes from several different lenders.
Need
Auto refinancing should be considered by anyone who has a high interest rate, especially in the 21 percent to 25 percent annual percentage rate (APR) range. It is also important for those who have low credit scores to attempt to refinance, which can often be accomplished despite the belief that there are no lenders that will accommodate them.
Doing the Homework
It is quite possible that your credit has improved since you took out the original car loan, or that the lender did not offer the best interest rate for which you were qualified. It is important to obtain a current credit report and clear up any inaccuracies that may appear. For access to credit information, see Resources.
Preparation
To be considered for refinancing, you will need to have a principle of at least $7,500 in order for the loan to be cost-effective for the lender. You will need to provide the new lender with accurate, up-to-date information about your current loan, and about your vehicle, such as mileage and vehicle-identification number.
Process
Refinancing an auto works much the same as refinancing a home. Consumers seek out lenders who offer interest rates lower than their current loan, then complete an application process. Once the loan is approved, the new lender will pay off the existing loan and set up the borrower with a new payment schedule.
Example
By refinancing a $16,500 car loan borrowed at a 21 percent interest over a period of five years, the payment can be reduced by more than $100 per month with a new interest rate of 7 percent. This can result in a savings of nearly $7,000 over the life of the loan. The earlier a loan is refinanced, the more the potential savings, since more of the payment goes toward interest in the beginning.
0 comments:
Post a Comment