#refinancing car loan
Refinancing Your Auto Loan
If you’re paying a high interest rate, or payoff seems too far away, you might benefit from refinancing. Refinancing changes the terms of your loan and transfers your vehicle s title from one lender to another.
The new terms can be beneficial for you and could save you money. Here are some factors to consider when looking at refinancing an auto loan.
When does refinancing make sense?
Things might be different for you or the market since your initial auto loan. These changes may allow you to refinance at a lower interest rate, which means lower payments. Here are some reasons why a loan refinance might work for you:
- Your credit score has increased: If your credit score is higher than it was when you first bought your car, refinancing could be a smart choice. A higher credit score could make you less of a risk to lenders, so they may be willing to offer lower rates. Refinancing can make a difference even with just a minor increase to your score.
- Interest rates have shifted: Rates may have also shifted a lot since you purchased your car. If they were high at the start of the agreement but have since lowered, refinancing could save you a significant amount. Decreasing your interest rate by as little as 1 percent may be enough of a reason to change lenders. For example, if you borrow $25,000 on a 50-month loan term with 4.7 percent interest, dropping down to 3.7 percent would save you about $135 per year.
- You want to shorten the length of your loan: If you have a long term loan, such as a 72-month loan, it can make sense to reduce the loan duration. Refinancing to a shorter loan may bring the overall interest cost of the loan down.
Are there potential disadvantages to refinancing?
Refinancing carries few risks, but it’s not always the best choice. Take care to avoid these potential pitfalls:
- Prepayment penalties: Check to see whether your current loan will issue a penalty for prepayment. In this case, refinancing could actually cost you more money.
- Extended loan life: Avoid any refinance that will extend the life of your loan. While extending could reduce your monthly payments, it may cost you more interest over the long term.
Refinancing your auto loan can be a great way to save. As refinancing isn’t right for all situations, it’s good to review the pros, cons and all your options carefully.
Visit usbank.com for more information on auto loans .