| Mar 14, 2012
The first thing you should do in deciding if a car refinance
is something you should consider is to check the documents on your current
loan. You 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."
Loans that use the "The Rule of 78s." 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 is to lower your
monthly payments due 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 is 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 borrowed the new-car rate if the
vehicle was purchased within the past 90 days. Still even the current year used
car interest rate is likely 4 percent or more lower than the dealer rate.
Or a car refinance 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.
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.