Should You Refinance Your Auto Loan?

An auto being refinanced.

How do you now if it is time to refinance an automobile? There are a lot of reasons that now might be a good time to refi. Most will be financial, but some might just be a bit more personal. Let’s take a look at some of the biggest reasons. If any one of these strikes a cord with you, you should consider refinancing and you should do it soon.

Your Credit Has Improved

This should be fairly obvious but you might not realize just how little of an increase it takes to make a big difference. Your score might have only gone up 20 or 30 points but that could be enough to earn you a 2 percent drop on your auto loan.

On a 20,000 dollar loan, that can save you an easy 1200 dollars in interest over the course of five years. All for a few minutes work on your part. Just fill out a short loan application and most lenders will handle all of the work from there.

You Financed At The Dealer

Most people know to haggle about the sales price of a new car but they do not know that everything is negotiable. You see, the dealer makes money on every step of the vehicle purchase, even on the financing. The rate you are quoted includes a certain amount that will be kicked back to them. Sneaky right?

If you financed at the dealer, unless you scored a special 0 or 1.9 percent incentive rate, you need to look at refinancing. Even shaving one percentage point off of your interest can save you hundreds of dollars in interest over the remainder of the loan.

Interest Rates Have Dropped

If interest rates over all have dropped, now might be a good time to consider a refinance. Even a small drop in your interest can save you money over the course of a loan. Since there are no fees with a refinance, why not take advantage of even the smallest savings.

On a 30,000 dollar loan, even just a half a percent drop will save you as much as $500 in interest over the course of five years. Every little bit counts, why throw money away.

You Need To Remove A Borrower

If your situation has changed in life, you might need to remove a borrower. This is usually the case with divorce. You want to keep a vehicle but you would like to remove another borrower. If you have little to no equity in a vehicle, this should be done sooner than later. The last thing that you would want to do is completely pay off a vehicle with an ex still on the title. They would have a claim to the ownership.

This complicates things a bit more but you generally just have to have the other borrower fill out a power of attorney so that their rights and responsibility are dropped. Like I said, get this done before you build up equity.

You Want To Shorten The Term

Shorten the term, why would anyone want to do that. Well, there are several reasons. If your income has gone up you might want to shorten the term. That would allow you to build equity faster and potentially move up to a nicer vehicle sooner.

In addition, shorter term loans generally have lower interest rates. The shorter loan term and the lower interest rate can combine to give you a very nice reduction in total interest paid over the course of a loan.

Tina’s Last Word

There are a lot of reasons to refinance a vehicle. Luckily, it does not take much of a savings for the process to be worthwhile. Most refinances cost the borrower nothing and most of the work will be handled by the new lender. The only thing that it really costs you as a borrower is an inquiry on your credit report and that will stop affecting you after only a year.

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