If you have an auto loan, you may want to consider the different ways refinancing may be able to save you some money.
How it works
When you refinance an auto loan, you’re essentially paying off your loan balance with one lender and transferring that balance to another lender who may be offering a better rate and/or term – saving you some money over the life of your loan.
When it makes sense to refinance
There are a few good reasons to consider refinancing your auto loan. For one, you may be able to find a lower rate somewhere else. Perhaps interest rates have dropped since you first purchased your vehicle. Shopping around for the best rate could pay off in the end.
Another consideration is if your financial situation has improved. Lenders use a number of factors to determine your rate, including your credit score and debt-to-income ratios. If either of these have improved, chances are you’ll qualify for a lower rate. Remember, the better your credit score, the better loan rates you’ll receive!
Even if you’re not able to get a better rate, you may be able to find a loan with a longer repayment period – hence reducing your monthly payments. But, keep in mind that extending your repayment period also means extending the amount of interest you pay. In general, you’ll pay more in interest over the life of the loan, even if your payments are smaller.
Be smart and do your homework! Shop around for the best rates and terms, check to see if the lender charges any fees to refinance your loan, and make sure you have enough equity in your vehicle – is it almost paid off, old, or does it have a lot of miles? You may want to hold off if any of these apply to you.
It’s always good to weigh the pros and cons of each situation. The same goes with refinancing your car. Check around for special offers sometimes offered by lenders in order to draw your interest. Credit Unions tend to offer incentives to bring your loan to them. See what SafeAmerica Credit Union has to offer. Learn more.