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Car Loan Refinancing
Most people are very familiar with refinancing home mortgages as a method of lowering their monthly expenses, but for one reason or another not nearly as many are aware that there's another great option that's even easier, car loan refinancing. Depending on your credit score, the term and maturation of your current loan and what your initial interest rate was refinancing car loans is a potential way to have a huge impact on the amount of money that you're having to spend each month, which can dramatically improve your personal cash flow.
Like I said, car loan refinancing isn't rocket science and is usually easier and quicker than refinancing a home mortgage, but this doesn't mean that you're not going to need to do your homework to actually do it right. The following sections will help you prepare yourself for the refinancing process and will help you set some expectations before you start getting all of your stuff together.
Reasons For Car Loan Refinancing
The first thing that you should be asking yourself when considering refinancing your car loan is how is it actually going to benefit your situation and why will it help your current cash flow? If you feel like refinancing could have a noticeable positive impact on your personal finances and the options that are available to you seem reasonable, then it could be the right thing for you to do.
Some of the more more popular reasons for car loan refinancing are as follows:
- You currently have a good credit score, but when you financed your initial car loan you had a bad credit score that resulted in a high interest rate that you could now lower.
- When you first financed your car loan you agreed to an interest rate that wasn't a very good deal in the first place and you'd now like refinance at a lower, more reasonable rate.
- Even though you financed your first car loan at a great rate at the time, interest rates have dropped significantly since then so you'd like to refinance at the new, lower rate.
- You would like to keep your nice car, but your payment needs to be lowered so that you can afford it. Instead of trading your car in for a less expensive car, you would like to refinance your current loan as a way to keep your payment manageable.
Each of these reasons are good enough to begin looking at car loan refinancing and how it can potentially affect your personal financial bottom line. Educating yourself is the first step in doing this, so keep on reading below and you'll learn everything you need in no time.
How Car Loan Refinancing Can Help
Now that you know the reasons that most people refinance their car loans, it's probably a good idea to explain exactly how car loan refinancing can help out your personal cash flow situation. You see, there are two main options that people who refinance their car loans are able to do and they're both intended on lowering your monthly payments.
Lowering Payments With Lowered Interest Rate
The first way that you could drop your monthly payments is by refinancing your car loan into a lower interest rate that has somehow become available since you first financed it. By lowering the interest rate, you could significantly decrease your payments, which would leave some additional money left over for additional monthly expenses. Here's an example of how this would work:
If you are currently paying 12% on a 60 month car loan that cost $30,000, then your payments would be right around $667.00. If somehow your car loan refinancing resulted in you having a new interest rate of 7%, your payments would drop to a much lower $594, which would result in a total savings of about $4,500 over the entire life span of your loan.
Lowering Payments With Extended Payment Schedule
The other way to significantly lower your monthly car loan payment is by extending your payoff schedule through refinancing your car loan. This option lowers your payments by simply giving you more time to pay them, which results in you paying more interest over time, but allows you to pay smaller payments on a month-to-month basis. Here's an example of how this would look:
You new car loan financed a $30,000 car at 7% for 60 months and you have paid of your first year of payments, which were $594. The balance owed after the first 12 months is around $24, 800. If you refinanced the remaining $24,800 for another 60 months at the same interest rate then your monthly payment would then be lowered to $491 per month, which would open up another $100 in your monthly budget.
Benefits Of Car Loan Refinancing
The benefits of car loan refinancing are pretty straight forward and if you're looking for a quick and easy way to lower your monthly payments and you have good credit, then it is something that you should be taking a serious look at. As opposed to most home mortgage refinancing, refinancing your car loan can be a fairly painless process.
There is no appraisal process like there is with refinancing mortgages since most lenders rely on Kelly Blue Book to determine how much your car is currently worth and as long as your car's value is more than your loan amount, then you're a perfect candidate and should persue the next steps.
Next Steps For Car Loan Refinancing
Now that you've learned all about what car loan financing has to offer you, you should have a good idea of whether of not you would like to take the next steps to continue on with the rest of the process. The next steps that you should follow are:
- Get all of the information that you can from your current car loan, including your payoff amount, current interest rate and your car's VIN#.
- Obtain a copy of your most current credit report. Your new interest rate will be mostly based off of your credit score.
- Start researching loan institutions that could potentially perform the car loan refinancing. You could look locally at some banks that you're familiar with, online at various online loan institutions and also at some sub-prime loan companies that could help you get into a loan even if your credit isn't great.
- Get several different opinions on your loan options and once you find the one that you're happy with, continue the car loan refinancing process until you're locked into your new payment.
- Pat yourself on the back because you just refinanced your car loan successfully!