Refinance my car loan: how much money can I save if I make such a move?


[ad_1]

Refinance my car loan: how much money can I save if I make such a move?
Image Credit: Provided

Dubai: Refinancing involves replacing one or more existing loans with a brand new one, usually through a different lender. But can I do it with a car loan?

Car payments can be a big part of your budget. Once you have financed your car, you may feel stuck and committed to the term of the car loan and the payment. However, that doesn’t have to be the case.

Refinancing a car loan can help you change almost every aspect of your car loan – term, rate, fees, and more. But it could come at a price and potentially higher amount in the overall interest paid if you extend the term of your loan.

So be sure to educate yourself on the reasons for refinancing, the value of your car, and the overall cost. Here are some criteria to consider before you start.

Keep the emotional factor at bay when buying a car

Refinancing a car loan can help you change almost every aspect of your car loan: term, rate, fees, and more.

Why refinance my car loan? How can I benefit?

There are many reasons you can refinance your auto loan. For example, you might have gotten a high rate initially and now your bank is offering a more competitive rate.

Another reason could be that you want to pay off your car sooner, but don’t want to pay interest or prepayment penalties.

Another reason to refinance your loan is to reduce your monthly payment. If you extend your loan for a longer term, you will likely get a lower monthly payment, especially if you lock in a lower interest rate.

Even if the rates haven’t changed, improving your credit score may be enough to get a lower rate. The better your credit, the more favorable loan terms you will benefit from.

If you’ve improved your credit score since signing your original loan, you may be eligible for better loan terms.

How quickly can you refinance a used car loan?

Wait at least 60 to 90 days after getting your original loan to refinance. It usually takes that long for title to your vehicle to transfer properly, a process that will need to be completed before a lender reviews your application. Early refinancing usually only works for those with great credit.

contract-945619_1920 auto loan contract

How quickly can you refinance a used car loan?

What are the costs that you must weigh when refinancing a car loan?

When comparing different auto refinance offers, you need to look past the quoted rate and potential monthly payment.

Before refinancing, also determine if the fees will affect your overall savings. For example, your current car loan may have a prepayment penalty.

Also calculate the overall interest over the term of the loan. Refinancing into a longer term loan could mean that your current loan and payment would be higher than the value of your car.

Even though a bank can allow this to happen, avoid it. You don’t want to be in a situation where you have to put in extra money to pay off your car loan if your car is destroyed in an accident or if you have to sell it.

In short, while refinancing is a good way to extend the term of your loan, don’t go beyond what is reasonable for the value of your car.

Are there other risks to take into account when refinancing a car loan?

If your goal of refinancing a car loan is to pay it off faster, let your bank know. They might be able to offer you a deal similar to refinancing without the costs of getting a new loan from a new lender.

Also, think about how much you will save over the life of the loan. While debt isn’t something to want to hold onto, refinancing a car loan to save a small amount of money over several years may not make much sense.

In fact, in some ways it could even hurt your financial health. For example, if you are planning to buy a house in the near future, this move could signal problems with your overall financial situation. So think twice before giving yourself the temptation to refinance your auto credit.

This is because every time you apply for credit, the thorough investigation will reduce your credit score by a few points. If you then open a new loan account, it will lower the average age of your accounts, which can lower your credit score as well.

1.848500-945570585

Are there other risks to take into account when refinancing a car loan?

4 steps to follow before going to the bank to refinance your car loan

1. Now that you know the pros and cons of refinancing an auto loan, make sure you have all the information before you accept an offer.

2. Know your current rate, current loan terms, and overall costs if you keep your loans. Now compare that to what you are offered.

3. Consider your car’s depreciation and potential changes in your situation, such as needing another car or having to sell the car and move out.

4. Know how your lender will value your car. A market price for a vintage car can vary widely, and this value is likely to guide the interest rate on your loan.

4 mistakes to avoid when refinancing your car loan

Refinancing your car loan doesn’t always make financial sense. The biggest mistake you can make when it comes to refinancing is timing. If any of the following scenarios apply to you, you may want to keep your current loan.

• You are well advanced in repaying your initial loan: Through the amortization process, which splits a loan into a series of fixed payments, your interest costs gradually decrease over the life of the loan. Therefore, refinancing has more potential for saving money when you are in the early stages of paying off the initial loan.

• Your odometer reaches big numbers: If you drive an old car with high mileage, you might be out of luck. Most auto lenders have minimum loan amounts and will not find it helpful to provide a loan on a car that has depreciated significantly in value.

• You are upside down on the original loan: Lenders generally avoid refinancing if the borrower owes more than the value of the car (also known as “submersible”).

• Your current loan has a prepayment penalty: Some lenders charge a penalty for prepaying your car loan. Before refinancing your loan, review the terms of your existing loan to make sure there are no prepayment penalties.

used car

4 mistakes to avoid when refinancing your car loan

At the end of the line ?

The main reason to consider refinancing is whether you can benefit from a lower interest rate and save money in the long run. Technically, you can refinance your auto loan whenever you want, even shortly after purchasing the vehicle.

But depending on where you are in the repayment schedule, your actual savings may vary. You can use an auto loan refinance calculator, available for free online, to calculate the numbers for your situation and see how much refinancing can save you.

If the interest rate on your car is much higher than expected, consider other options. For example, would it make sense for you to take out a personal loan and pay off your car, if your goal is to opt out of the car loan sooner?

Likewise, if the goal is to have more cash on hand, a personal loan may be the solution.

[ad_2]

Comments are closed.