Have you ever wondered how much can an auto refinance save you? If you can secure a much better interest rate or shorten the term of your loan, you could save a significant amount of money. Below are three specific examples of how much an auto refinance can save you money based on different auto refinancing scenarios.
Refinance to a Lower Interest Rate
Not everyone shops around for the best interest rate before they take out a car loan. If you fall in this category, you could save money by refinancing your car loan, even if your credit score is still the same. Here's how it would work.
Twelve months ago you took out a $35,000 auto loan for 60 months at a 7.9% interest rate. Your payments are $708.00 per month and you still owe $29,056.87 on your loan. You apply to refinance your car loan and find out you can get a 48 month car loan at a 2.9% interest rate. Your payments would be lowered to $641.87, which saves you $66.13 per month or $3,174.24 over the remaining 48 months of your auto loan without calculating any fees you may have to pay when you refinance.
Refinance to a Shorter Loan Term
Not everyone realizes that a longer loan term means you'll pay more money in interest over the life of the loan versus a shorter loan, even if your interest rate remains the same. Here's how refinancing to a shorter loan can save you money over the life of your auto loan, even though it results in higher monthly payments.
Six months ago you took out a $35,000 auto loan for 84 months at a 5.9% interest rate. Your monthly payments are $509.62 and your remaining loan balance is $32,949.70. You are approved for a 36 month auto refinance loan at the same interest rate of 5.9%. Your payments increase to $1,000.91, but you're alright with that because you'll be saving in interest over the life of the loan. If you continued with the old 84 month car loan, you would have paid an additional $6,800.66 in interest payments, while you only pay $3,083.06 in interest payments with the refinanced 36 month loan. Overall savings by refinancing to a 36 month term auto loan are $3,717.60, which does not include any fees that may apply when refinancing.
Refinance with a Better Credit Score
Credit scores play a huge role in the interest rate you get on your car loan. Sadly, some people don't check their credit score and credit report to make sure everything is what it should be prior to making a purchase. If you have a car loan with a high interest rate and find out there is an error on your credit report, correcting the error may lead to a higher credit score and a lower interest rate if you refinance your auto loan. Here's how refinancing an auto loan with a higher credit score can save you money.
Twelve months ago you took out a $25,000 auto loan for 72 months at a 10.9% interest rate due to a poor credit score of 610. Your monthly payments are $474.57 and you still owe $21,877.17 on your loan. You find out there were errors on your credit report, get them resolved and notice your credit score is now 680. You apply to refinance your auto loan and find out you now qualify for a 60 month auto loan with a 6.9% interest rate. Your monthly payments on the refinanced loan are $432.16 which saves you $42.41 per month. Over the life of the old loan you would have paid $6,597.03 in interest, but over the life of the new loan you'll only pay $4,052.43 and save $2,544.60 in interest payments, without accounting for any refinancing fees.
Find Out How Much You Can Save
The answer to the question of how much can an auto refinance save you varies depending on your individual situation. The scenarios above give some great examples of ways you can save money by refinancing your auto loan. If you want to see if you can save money by refinancing your auto loan, get started by comparing multiple quotes through LendingTree to find the best deal for your situation.