You've read that interest rates are likely to rise soon. Is that a good enough reason for refinancing your auto loan? With everything else on the rise, you might need to lower your monthly car payments. But what if refinancing extends the term of the combined loans so you're paying more for your car as it depreciates in value?
The following five refinance auto loan tips can focus the conversation on the key factor: saving money.
Refinance Tip #1: Free Up Needed Cash
If you owe less than the current value of the car and need money, an auto refinance loan can put money in your pocket if you finance the total of the cash you need plus the remaining debt on the original financing. Depending on the rate and whether the term remains the same, consumers can save a few thousand dollars. One way to determine monthly payments on loan offers is to use the LendingTree auto refinance calculator. The key consideration is whether you end up paying less for the total cost of the loans.
Refinance Tip #2: Get a Better Interest Rate
It may be true that the Fed may increase interest rates shortly, but unless the rise boosts the rate to within a point of your original financing, there may not be much to save. However, consumers who have higher income or healthier credit scores than when the car was new can seek offers to see if they qualify for current auto refinance rates.
Refinance Tip #3: Lower Monthly Payments to Fit Your Budget
For some consumers, something has to change if they're going to make it through the month. Auto refinancinmegan
g can add a year or two to the term, but lower monthly payments (depending on the rate). This solution is similar to the one to free up cash, but if the interest rate isn't substantially lower than the one applied on the original, you're really just renting the money for the lower monthly installments. The trade-off may be worth it if the car owner is staving off the wolves.
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Refinance Tip #4: Get the Shortest Term You Can Afford
The older the car, the more lenders tend to charge on refinancing interest to compensate for decreased value. Some limit the vehicle age to six or seven years. To ensure that the refinancing makes financial sense, consumers should seek the lowest interest rates available based on their credit over the shortest terms they can afford. Realistically, consumers are facing low odds of refinancing their cars at favorable rates if their credit scores are below the 600 line. Check credit scores for free at LendingTree.
Refinance Tip #5: Study the Agreements
The best auto refinance companies for getting a new loan include banks, credit unions and auto lenders. Read the offers with care. Not only should consumers look carefully at the fine print on offers, they need to look at the charges outlined in their original loan for possible pre-payment penalties. So-called "pre-computed loans", less common these days, require borrowers to pay both the remaining loan principle AND the interest.