With interest rates still at very attractive levels, many homeowners have or plan to refinance their mortgages. While the savings from refinancing can be significant on a home, it can also be very meaningful for those currently with an auto loan at high interest rates.
Refinancing a car loan
Historically, refinancing a car loan hasn’t been logical for borrowers since vehicles typically lose value very quickly and the loan eventually becomes worth more than the actual car. It may even make more sense for borrowers to payoff the entire loan and purchase the car outright. Yet, the amount of refinance applications for car loans is on the rise as rates remain at near all-time lows.
Why I might want to consider refinancing?
The savings can be significant for borrowers with high rates and it is fairly easy and cost-efficient to do as compared to refinancing your mortgage. Furthermore, it is not difficult to hit the break-even point quickly if the rate on your original loan is already high. Still, review your loan documents to make sure that there are not any prepayment penalties. If there are, determine if the cost of the penalty outweighs the potential interest savings.
What should I watch out for when refinancing an auto loan?
There is not much in it for the dealers when you refinance which is why they often pitch other products such as warranty services. Stay away from those offers as it will defeat the purpose of refinancing in the first place.
You should also work on negotiating the rate by mentioning how you’ll be interested in purchasing a new vehicle in the future.
You can also arrange financing directly with a bank or credit union in advance. If your vehicle is fuel efficient, some financial institutions offer special loans at reduced interest rates which may not have been available when you first signed the loan agreement.
More Personal Finance Questions? Browse Answers or Ask a Financial Advisor Online.
Related Articles
->Advice for Financing a Car
->How Can I Still Save Money At The Gas Pump?
->Commuters Shouldn’t Expect a Standard Mileage Rate Increase
->Is There A Way to Save Money when Buying An Electric Car?
->With Gas Prices So High, Is There a Good Way I Can Still Save?
->Car Insurance and Other Potential Vehicle Tax Deductions
