Refinance a Used Car Loan: Know When It's Right for You to Save Money

If you're looking to refinance a used car loan, it helps to know about how much this personal finance change will actually affect your overall price for the vehicle. Lots of drivers do choose to refinance an auto loan over the term of that loan, especially if they took out a long-term loan option over five or six years. Getting a better interest rate can give you a lower car payment each month and decrease what will eventually come out of your wallet by the time you get the lender to drop the lien on the fully paid off vehicle.

Will Refinancing Pay Off?

To look at whether refinancing is the key to lowering your costs on a car purchase, you want to look at the total amount you will save, balanced against any fees or expenses related to the refinancing. Agents who help you to refinance and find another lender often look for some compensation in the form of fees. That means that your refinancing may not end up in profit for you, unless you're able to secure a significantly lower interest rate or APR.

General Rate Changes and Results

In general, you will want your interest rate to be cut by at least one to two percent in order to make the refinancing worthwhile. This also changes in accordance with how much money you have left to pay off. For loans under $1,000, refinancing will not make a whole lot of difference, while those with $15,000 or more can save a whole lot. Use a simple car loan calculator to look at how a lower interest rate will affect what you will save over time.

Use this general information to find your profit in a possible refinancing deal for your auto debt.

Related Questions and Answers

If you are refinancing a car loan with bad credit, your biggest concern will probably be finding a loan. Lending has tightened up in recent years, which can make finding a loan difficult. The second major concern will be the interest rate. Lenders will charge a higher interest rate to borrowers that have bad credit. They are taking a bigger risk, lending the money and expect a higher return. Having a co-signer with excellent credit can increase your chances of getting a loan. It can also help lower your interest rate. Having a significant down payment can also bring down your interest rate.

The length of your car loan term can be quite flexible. It depends on the lender you are borrowing from, your credit score and the type of vehicle being financed. The majority of finance companies offer loan terms ranging from twelve months up to sixty months. If you wish to change the terms during the loan it will depend on the lender. Paying the loan off early, especially if it is just a few months early is usually not an issue. There may be a small early payoff fee. If you wish to extend the term of the loan, this can usually be negotiated. If you are looking for just a month or two extension, talk with your loan officer. It may involve a late fee. If on the other hand you are hoping to extend the loan by a year or more, it would be necessary to refinance.

There are very few car loan options if you are upside down on your vehicle loan. When a loan is upside down, it means that you currently owe more on the vehicle than it is worth. Getting out from an upside down loan is very difficult. Even if you sell the vehicle, you will still owe money on the loan. It is sometimes possible to refinance, but this will not change the fact that you owe more on the vehicle than it is worth. At best, it may lower your payment but lengthen the term. The best option is to just bite the bullet and pay off the vehicle as fast as you can. If you are desperate, letting the bank or finance company repossess the vehicle is one solution. Doing this will have a serious adverse affect on your credit rating.