Save Money, Improve your Credit – Auto Loan Refinance – Part Three of Three

In part two we talked about how more often than not, if you ask anyone about “refinancing”, they associate it with their home mortgage, a lot of paperwork and expensive fees. What consumers have not clearly been aware of is that by refinancing their car loan, they can possibly save money on the interest they are paying, reduce their payment or total cost of the loan, and can actually improve their credit score in the process.

“As we have discussed before, there are a lot of auto buyers that pay more than they have to pay because they need a car,” says Heather Dietel, Director of Business Development at myAutoloan.com, a licensed auto loan refinancing lender. “If they just had to have transportation and purchased a car with higher rates at the time, they will absolutely be surprised at how much they can save.”  There are a lot of good reasons to consider doing an auto refinance loan so let’s highlight a few of them.

Benefits of Auto Loan Refinancing
The most obvious benefit of refinancing your car loan is to save money on the interest you’re paying. You can also shorten the terms of your loan or reduce your monthly payments. One great benefit of refinancing is to improve your credit.  “When you refinance, it will show up as a car loan that was paid-off in full and on time on your credit report,” Dietel explains. “The new lender pays off your current loan and even though you’re taking out a new loan with the new lender, it will help your credit score.”  Remember to keep your auto refinance loan applications to a one to two-week time period so it won’t negatively affect your credit score.

Whether refinancing will lower your current car loan rate by 10% or 1%, you will still save money, Heather says. On average, consumers can save $60 a month on their car payments and get a 3.8% rate reduction, she says.  “Even if you only get your interest rate dropped 1%, you’ll still lower your monthly auto payment and save hundreds of dollars over the course of your auto loan,” she says. “With that, you can either pay off your loan faster, or invest that money in getting rid of other debt. Remember, the way to get the lowest interest rate and save the most money is to make the auto refinance loan term equal to or shorter than the old loan.”

Examples of how much you can save by refinancing:

Loan amount:           $30,000
Original loan                      New loan
term:                        60 months                        60 months
interest rate:             12.5%                              7.5%
payment:                  $675                                 $601

monthly savings:  $      74
total savings:         $4,429

Loan amount:           $20,000
Original loan                      New loan
term:                        60 months                        54 months
interest rate:             12.5%                              7.5%
payment:                  $450                                $436

monthly savings:       $14
total savings:        $3,434
6 month shorter loan

Overall, at whatever level your credit score is at and whatever interest rate you are currently paying on your car loan, refinancing can save you anywhere from several hundred to several thousand dollars over the life of the loan. Check online and your local credit union or bank to see what they offer and to see if you qualify to refinance.

Financial experts tell consumers to check all areas of their monthly budget to see where they can cut, like insurance, groceries, cable bills and phone bills. Your car loan payment is an expense that you can easily reduce by refinancing.