What to Remember about Refinancing an Auto Loan

[Sep 28, 2009.]

 

Recently we wrote about applying for an auto loan. People who already have car loans and are searching for ways to cut their monthly payments could save money by refinancing their loans. Generally, refinancing auto loans is much less complicated than refinancing a mortgage loan. Here's what car owners need to know about doing a refinance.

What's Your Credit Score?

If a borrower's credit score has significantly improved—say by 50 points or more—since he purchased a vehicle, a refinance could potentially result in significant savings. For instance, a driver who purchased a $20,000 vehicle and financed it at 13% for five years would pay $455.06 a month. If they still owe $18,000 on the car and refinance at 10% for five years, the payments would drop to $382.45. The best-case scenario is being able to refinance an auto loan so that it has a shorter term and lower monthly payments.

Fast Loan Applications

In many cases it doesn't take much time to apply to refinance an auto loan. You can apply as fast as 10 to 15 minutes for a loan. Search for free auto loan quotes here to decide if refinancing makes sense.

Who Should Consider Refinancing?

Anyone who want to save money is obviously a candidate for refinancing. But specifically, folks who financed their auto with a short-term loan with high payments see a huge benefit from refinancing. Also, anyone who got suckered into a high interest rate by a fast-talking car salesperson who manipulated the numbers to squeeze out the highest possible payment can benefit from getting a new loan.

What's Required to Refinance Loan?

Refinancing an auto loan doesn't require an appraisal, unlike refinancing a mortgage. However, the borrower's credit report does matter when refinancing an auto. Anyone who hasn't looked at their credit report in a while, can get a free copy at annualcreditreport.com. Other things to remember about refinancing:

—The earlier in the auto loan a person refinances, the more he can save. That's because much of the interest paid on an auto loan is paid at the beginning of the loan term.

—Most lenders won't refinance a loan if the balance is higher than the value of the car, or the car is too old.

—Refinancing isn't usually the best option for people who received zero or low-interest auto loans.

The car owner also should ask his lender if there are any prepayment penalties on the current auto loan. If so, the cost of refinancing may not be worth it.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.