How to Save Money When You Refinance Your Auto Loan
If you refinance your existing auto loan with a new lender, you could end up saving thousands of dollars in interest by getting a lower rate. You may even be able to pay off your loan sooner. But as with any major financial decision, it’s best to consider your options and determine what makes sense for your unique situation.
Refinancing may not be the best choice for everybody, but if your current auto loan isn’t working for you, refinancing could help you get your finances back on track. Here are some things to look for when determining whether or not to refinance so you can ensure you’re really saving money:
Lower Interest Rate
If you’re struggling with your current interest rate, refinancing your loan could help you get approved for a lower rate, especially if your credit score or your overall financial situation has improved since you took out your original loan. Even if you’ve only had your current loan for a short time, making your payments on time each month can significantly improve your credit score and your chances of qualifying for a better rate. If you’re unable to reduce your interest rate, it might not be worthwhile to refinance your loan.
Lower Monthly Payment
Your monthly payment calculation includes your interest rate, so lowering your rate will also help you reduce the amount of your required payment each month. A lower, more manageable monthly payment will also make it easier for you to manage your monthly cash flow.
Shorter Loan Term
Be cautious when it comes to the length of your loan. Stretching your current loan to a longer-time loan means you will actually end up paying more for your car in the long run. While a longer loan term will reduce your monthly payment and can provide relief when monthly funds are limited, stretching your loan will increase the amount you pay in interest over the life of the loan, so you wind up paying more than if you stick with your current loan term. Depending on how much you extend the life of your loan, at some point you may wind up owing more on your car than it is actually worth. Ideally, you want to avoid extending the length of any loan.
Watch Out for Fees
Check to make sure there is no pre-payment penalty for paying off your loan before the end of the loan term. Depending on the amount of the penalty for early payoff, it could completely negate the amount you saved by reducing your interest rate, so you’re best off finding a lender with no penalty. At Robins Financial, there are no pre-payment penalties on our auto loans. Refinancing your auto loan is only a worthwhile option if you are able to save money overall; after including all factors in your calculations.
Even though your car loan is paid off over time, most of the interest cost is paid at the beginning of your loan, so you’ll see the most difference in cost if you refinance sooner rather than later. Additionally, interest rates are typically lowest on newer vehicles, and many lenders have model-year limits, meaning they won’t refinance loans for a car over a certain age. If you wait too long to refinance, you may wind up with a higher interest rate than if you had refinanced sooner, or you may find that your car is “too old” for most lenders.
Avoid Missing Payments
Any late or missed payments while you are pursuing an auto loan refinance can hurt your chances of being approved, as well as damage your credit. While in the middle of the refinance process, you may think you can go ahead and stop sending payments to your old lender, but it’s best not to assume anything is complete until you receive confirmation. Stay involved throughout the entire refinance process, and confirm with both lenders before stopping any payments.
If you’re thinking about refinancing your auto loan, it’s important to take all factors into consideration to make sure you will actually save money in the long run. Use our financial calculators to help you determine how much you can save by refinancing.
Refinance and save with Robins Financial to drive home your savings. To find out how much you could save, give us a call or stop by one of our convenient branch locations. If you’re ready to refinance, you can apply online today.