Refinace Your Auto Loan at the Absolute Lowest Rate

Refinancing an auto loan is essentially paying off your current loan with a new loan. Your new lender pays-off your balance, takes over your car title, and you begin payments to this new lender. The reason to refinance is you may find a loan at a significantly lower rate. Consider the factors affecting your costs and find a rate that makes your loan affordable.

Consider Penalties on Your Existing Loan

When you signed your current auto loan, you agreed to certain penalties if the loan was paid off early. Your new lender will be paying off your loan if you refinance. Make sure the savings you find with your new interest rate make up for this penalty. To avoid these penalties in the future you must negotiate them out of any new contract. When you refinance, ask your new lender about any similar penalties the company may have.

Consider Your Current Ability to Pay

Your monthly salary should be double the amount you owe in debts. Those debts include: rent, mortgage, insurance, car payments, student loans and any other payments you make. Most people have a car for 5 to 10 years. Over those years, your ability to pay will change dramatically. You may have opted for low monthly payments at a high interest rate when you bought the car. After years of promotions or paying off student debt, your cash flow has likely increased.  Similarly, if you have lost your job or taken on a mortgage, you may need lower monthly payments. Determine what payment you can afford and structure your rate around that payment.

Compare Your Options

Dealers usually offer financing plans to help you buy a car. While these plans are convenient, they are not usually the least-expensive options. Ask your banker to run a comparison. Then, run a similar comparison with dedicated lending services. You can easily find these services online. Remember: a low interest rate decreases your total cost of ownership but is not the only factor. If you get a low interest rate but cannot afford the monthly payment, refinancing will not help your situation. For example, it is possible you are in an upside-down loan. This means you owe more than your car is currently worth. If this is the case, you need to be aggressive in refinancing the loan at a very low rate. If you have equity in a car that has held its value, though, you will have more options when it comes time to crunch numbers.

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