When you compare refinancing auto loan and home mortgage at a lower interest rate, you will realize that the latter is expensive. Normally, processing fees for the auto loans are pegged at nominal rates and there are no appraisals involved. Since these rates are competitive, it pays to shop around. In fact, USA Weekend Magazine once wrote that many credit unions’ core business is in refinancing auto loans.
One of the main reasons why many people choose to refinance auto loans is to save money. In some cases, some people are forced to pay higher rates because of their credit score, but once they improve their score; chances are that they will pay less through refinancing, which in turn lowers their monthly auto payments. If you can, you can clear your car loan sooner if you continue paying the same amount every month even though they have been lowered.
Technically, you can save money on refinancing auto loan at one per cent less than what you are currently paying. This means you can save a substantial amount if you can refinance the auto loan at several point lower than what you agreed when you were taking out the loan. The only possible catch in this case is that you may have to shift to another lender. However, once you have made your payment for the first six months on timely basis, you will not have a problem finding one.
Lenders will not be willing to give out a loan that is more than the value of the vehicle, simple because the car itself is the collateral. In essence, many lenders will not refinance auto loan unless you owe more than $7,500. Therefore, before you start the process, find out how much your car is worth. There are many resources on the web that can help you with this. The key thing to remember is that lenders do not refinance auto loans on the basis of the value of the car but rather the amount you owe on the original loan.
It does not matter how bad your credit score was when you first took out the loan, if you have taken the necessary steps to improve it, you should be in a position to find a lower APR than what you could be paying. Although you may not pay the lowest loan rates on the market, but you will save some money both on monthly payments and interest rate.
Finally, before you move on to another lender, talk to your lender first. If you have been making your payments on timely basis, he or she may be willing to lower the rate on the loan. If you are successful, it will save you both time and money. If you do not succeed securing a lower interest and you must look for an alternative, check whether there are any prepayment penalties that you lender levies. In most cases, the biggest chunk of interest on a car loan is paid during the first half of the loan duration, which means the earlier you pay, the more you save. Lastly, note that the interest rates levied on used car loans are usually higher than those charged on a new car.