Even people with good credit can end up paying high interest rates on their auto loan. It’s exciting when you are there, signing one document after another, just as a means to an end to drive off the lot in your new ride. But, a loan’s interest rates can make the difference of hundreds of dollars in monthly payments, and thousands over the lifespan of the loan. But, in order to get the best deal, make sure you are aware of all wrinkles in your credit report. Here are some scenarios when refinancing your car can help your finances.
1. Your credit score has improved
If your credit was bad or non-existent when you financed your car, you may have had to accept an auto loan with a high interest rate (upwards of 20%). An auto loan is actually a good option to improve your credit score and show your reliability. If you have improved your job stability and made on-time payments for more than a year, you may qualify for refinancing at a lower interest rate.
2. Your loan terms are penalizing
This is a good time to be looking for new auto loans, since interest rates are still low. First, look your current loan and find out if there is an early payment penalty. Is the loan calculated with simple interest (interest is charged each day)? Or is it a pre-computed loan (principal plus full interest accrued over the life of the loan)? Pre-computed loans have a crafty prepayment penalty making it difficult to end your auto loan early. They are sometimes offered at smaller lots that cater to those with damaged credit.
3. You found a better deal
Usually small banks and credit unions offer the best refinancing deals. You should also arm yourself with the current loan rates in your area by checking out websites that compare rates. Check the mailbox for refinancing solicitations from credit unions and banks and research online for competitive auto loans, such as LendingTree.com, Eloan.com, and AutoLoansSpot.com, to name a few. Be on the lookout for processing fees and extended terms when shopping to refinance your auto loan. Many refinancing options extend the term of the loan at a slightly reduced interest rate, which basically extends the amount of months you will be paying it off. You will see an immediate reduction in the monthly payment, but refinancing could add on extra months to the loan.
This was a guest post by SeattleBankingRates.com, a site that provides daily updates on the latest Seattle mortgage rates, finance information and more.
Tags: Auto Loan, Auto Loans, Credit Score, Credit Unions, High Interest Rate, High Interest Rates, Interest Interest, Lifespan, Loan Rates, Loan Terms, Lookout, Means To An End, New Auto, Prepayment Penalty, Refinancing Your Car, Scenarios, Simple Interest, Solicitations, Time Payments, Wrinkles