Why Car Loan Refinancing Has Become More Popular?
Have you ever thought about refinancing your current car loan? In the past few years, automotive refinancing has become more and more popular – especially as the interest rates that independent used car dealers and even new car dealerships charge continue to go up. There is something you can do about it. You can decide to stop these higher payments now and opt for car refinance to bring your payments down. After reading this article, you may be interested in automobile refinancing for a new car that you have just purchased recently, or auto refinance for a used car.
There a few reasons why someone may want to refinance their auto loan. First, depending on your financial situation when you first applied for a car loan, you may have taken a “no credit” or “bad credit” Car Financing at a very high interest rate. If you have made on-time payments since, and possibly have other good credit marks from other companies (credit cards, mortgage, utilities, and others that report to the three major credit agencies – Equifax, Trans Union, and Experian), then regardless of your previous bad credit history, an auto refinancing loan can probably get you a much lower rate than you are paying now. In this way, diligent payments and hard work to clean up or create a good credit history to start with will pay off by giving you a much more affordable payment now.
Another reason why some people may be in the market for car loan refinancing may be that they had made a mistake when purchasing their vehicle to start with. Maybe a high-pressure salesman put them in a new car that is far too expensive for their current income. (This can happen easily and it is why it is a good reason to have the car in mind that you want to buy before you go to the dealer’s lot.) Or, because of poor credit, an auto loan with a very high interest rate was given. Often dealerships will take advantage of people in these circumstances and try to give them the highest interest rate possible, sometimes more than 25%! As people are pressured to make a decision on the spot, many times they take the bad loan to be able to drive away immediately, only to be sorry after they see how much the high payments will really impact their lifestyle.
If someone has good credit and they are looking for the lowest rate, Car Financing is a simple matter. There are many companies to choose from and most can offer you a much lower rate than you are paying now. However, you absolutely can also refinance a car with poor credit. Auto refinance with bankruptcy or repossession, while it can be a challenge, is possible and there are many companies out there to work with. Online car refinance lenders are typically able to help most people out of their bad credit car loans and into an auto refinance loan that more adequately matches their needs.
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Posted on October 20, 2009 | Under Auto Financing Loan | 6 Comments
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6 Responses to “Why Car Loan Refinancing Has Become More Popular?”
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When you refinance, basically you are taking out a new loan to pay off the old loan. So, your old loan no longer exists. Your new loan will consist of the balance you owe on your old loan, plus the interest accruing over the term during which you pay off your new loan. The new lender will get a "payoff figure" from the holder of the first loan. That amount will be less than the amount you would have paid in total if you had continued paying the old loan to its maturity date, but it will be at least the principal balance still outstanding on the old loan.
If you will open a saving account at a credit union (even keeping only a $25 balance), you can usually take out a loan at a loser interest rate than you will get from a bank or finance company. If you agree that the credit union will automatically withdraw your payment from the savings account each month, sometimes you will be able to reduce your interest rate by another 1/4%. Just make a deposit to the savings account each month in an amount and on a date that will ensure that there is at least $25 more in your savings account than you need for the amount of your loan payment.
There are different reasons people will refinance a car loan. The three main reasons are to remove a name <co-signer> from the loan, pull possible equity from the loan, or most common, to lower the current monthly payment. Here is a brief explanation of trying to lower your payment:
If you have 3 years left to pay a car loan with a payment of $388 per month and a balance of $12,000, you might take out a new loan for the $12,000. However spread the balance over a 48- month term, then depending on the interest rate, you can lower your payment to $310 per month. The disadvantage to this method is you now have 4 years to pay on the vehicle instead of 3, which also means you will pay more money in interest over the term of the loan. Your second loan will sometimes have a higher interest rate than the first one, so before you refinance, make sure you understand the additional interest you will pay in relation to the lesser monthly obligation. Good luck and I hope this helps.
There are several factors to consider. One is the reduction in APR, others include the balance you owe, the term of the loan and your comfort level with the payments.
Do not look just at the monthly payment, especially if you are going to extend the term of the loan. Usually it is a good idea to try to keep the same (or shorter) term, rather than extending it.
Take the total of payments that you will have to pay if you do not refinance, and compare that number to the total of payments that you will have to make on the refinanced loan.
The difference in the two numbers is the savings (or additional cost) if you refinance. Use that figure to decide if the savings are worth the trouble!
the real answer is yes. paying off your loan can hurt your credit score. The first auto credit score will be paid off and that builds credit. However your new loan will have a high balance and will add new debt that lenders will look at. If you want to increase your credit score make larger payments on the car loan. In order to increase your credit score make sure you pay off balances and DO NOT GET YOUR CREDIT PULLED BY A LENDER. Also make sure you order a copy of your credit score (this does not count against you) so you can check for errors. finally make sure your good credit is updated as this can really help build your score.
Every time you fill out an application, your score takes a ding. However, showing a paid off car loan would bring your score up.
The problem with refinancing your car loan is that you keep extending the term and are racking up more interest charges overall. If you can really find a substantially better interest rate, consider shortening the term. Your payment might stay about the same amount but you'd pay off the loan a lot sooner.
By the way, I simply cannot imagine paying even 18% interest on a car loan!
There is a law in Florida that they are now enforcing that says you do have to pay tax on a refinance if you are changing the title (adding or removing an owner).
But it's just Florida. If you don't live there, you're good.