| Sep 20, 2011
The first thing you should do in deciding if a car refinance
loan is something you
should consider is to check the documents on your existing car loan. You will
want to be sure that there is not any penalty for prepayment and that the
interest on your auto loan is not based upon "The Rule of 78s." Most
loans today are simple interest loans so I would be surprised if your loan
wasn't based on this calculation method. However, loans that use the "The
Rule of 78s" method of calculation basically collect 75 percent of the
interest due on the note during the first 50 percent of the loan's term.
Very few lender issue loans under the rule
any more, but you still need to check.
The primary objective of a car refinance loan is to lower your monthly payments or
reduce the amount of interest you pay on the loan.
This can be accomplished by lowering the
interest rate on your note, extending the term of the note or some combination
of the two.
One of the most common
reasons for a car refinance occurs when someone accepts expensive dealer
financing and then finds out they can get a much better rate at their bank or
credit union. In fact many times the bank or credit union will give the
borrower the new car rate if the vehicle was purchased within the past 90 days.
The financing of your vehicle is one of the largest areas of dealership profit so
securing your loan outside of the dealership is usually the smartest financing
choice for you. Even if you don't get the financing up front and you end up
using the dealership to finance your vehicle purchase, you can still refinance
and in most cases get lower car payments
A car refinance loan may be in order if your credit score had a few dings when you
purchase the car but now it has improved.
The better score may allow you to shave several points off the interest
rate and get a longer term, dropping your monthly payment considerably. Most
consumers improve their credit scores after making 5-6 payments on time on
their vehicle. It doesn't take much improvement in credit score to qualify for
a lower interest rate
. Many consumers just refinance to lower their payments
and others are more interested in lowering their current interest rate.
The bottom line being if you are considering a car refinance loan you need to do
your research before you sign on the dotted line with a new lender, be sure
that you are in fact saving money with your car refinance. Check online for
lenders offering this product. It is online where you will typically save the
most on your auto refinance
loan. You can also find useful tools like car loan
calculators and other helpful resources online.