Information on Refinancing a Car

Just as consumers can save money by refinancing a home mortgage loan, refinancing an auto loan can also result in significant savings. The process of auto refinancing works much the same way as for a home loan, in that a new lender pays off the balance of your current loan and offers you a new loan with a lower interest rate. However, the auto refinancing process is typically less cumbersome than that for a home.

Function

With refinancing a car loan, the borrower can take advantage of lower interest rates than those that were available when he purchased the car. Borrowers can complete the process online by visiting websites such as Up2Drive.com and CapitalOne AutoFinance. Bankrate.com allows borrowers to match your loan applications with other banks so that you can get the best rate possible.

Benefits

Edmunds.com indicates that refinancing could save you a considerable sum of money over the life of a loan. In some cases, you could reduce your monthly payment by $100 or more. Assuming your car loan is for a five-year period, the total savings could reach $6,000.

Types

There are a variety of borrower types who should consider refinancing. Those who have seen their credit score improve since they took out their original loan can benefit from lower interest rates. Those who may not have taken the time to get the best possible deal when they purchased their car may be able to get a better deal by refinancing. People who want to spread lower payments over a longer period of time to make room in the budget for additional obligations like a home mortgage can also be good candidates for refinancing.

Considerations

According to Edmunds.com, the process of refinancing a home is much easier than other forms of refinancing, such as that of a home mortgage. The application process typically only takes 5 to 10 minutes when using the Internet. The process also involves much less red tape and paperwork than a mortgage loan.

Warning

According to CarBuyingTips.com, most lenders will not refinance their own auto loans, so you will likely have to use a different financial institution to arrange your loan. Also, be sure to obtain your credit score before even considering applying for a car loan. If your score is below 600, you will have a very difficult time finding a lender.