There are several reasons that people choose to refinance their auto loans. The basis behind every reason is to obtain lower monthly payments. After all, what is the purpose of going through the trouble of securing a refinance car loan if the payments are higher than what you are currently giving the car financing company each month? By refinancing your loan, you can obtain lower interest rates and lower car loan payments. By lowering these rates, you will lower your payments and more of what you pay will go toward paying your car off rather than paying interest. The rate decreases that you can realize vary between customers. Picture your $20,000 auto loan over 72 months dropping from 7.99% to 3.99%. This results in nearly $40 saved monthly and more than $2,700 saved over the refinance car loan term.
As if this initial reason were not enough to refinance car loan, here is another reason. If you are getting divorced, you should consider a refinanced loan to get your name off loans taken out by your spouse. This is important because of your ex fails to make payments, it will reflect on your credit score unless you remove your name from the loan. The only way to accomplish this is to refinance the auto loan altogether.
When you were younger, you may have needed to purchase your car under your parents’ names or other cosigner to obtain a lower-interest auto loan. This is most common for first-time buyers that have no credit. Assuming you have paid the loan on time, you should have credit established after a year. Refinancing now is the chance to earn your independence and put the loan under your name alone. This is also a kind gesture to your parents or whoever the cosigner was because it frees up their credit so they can take out other loans if they need to.
If you took out your original loan with a car dealership, they may be making hefty profits on your loan. Dealerships like to markup rates when they arrange financing for their customers. A 2% markup could mean hundreds, even thousands, of dollars depending on the loan term and how much money you borrowed. By finding better rates with a different lender, your refinancing goals can be met with savings of $30, $50 or even more each month. Numbers like these really add up, making the choice to refinance car loan a smart decision.