How Long Should I Wait To Refinance My Auto Loan
Should I Refinance My Auto Loan
Wondering, “Should I refinance my auto loan?” Well, you need to know that refinancing cars could be the best option if you have started feeling the pinch on your pockets while paying your existing monthly car payments. Besides, nowadays you could even find lenders that specialize in providing vehicle refinance loans online to those borrowers who have bad credit histories.
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When Should I Refinance My Car Loan?
What is the use of getting a car refinance loan?
A low rate car refinancing loan can be used for paying off unpaid principal loan dues on an existing high interest auto loan which has become difficult to manage and sustain. To obtain a refinance car loan, you may have to pledge the car, which is being refinanced to a lower interest rate, as collateral against the loan amount being provided. The new monthly instalments are fixed and term extended.
Why people consider refinancing their car loans?
Majority of the people think of refinancing car loans in any of the following circumstances:
- Credit score has shown big improvement and hence, want to get rid of costly loans by qualifying for lower rates
- Interest rates offered on auto loans have declined considerably making car refinancing an attractive proposition
- Current monthly car payments have become difficult to handle for any reasons and intend to get a loan with longer duration.
When Is It The Best Time To Get A Car Refinanced?
Auto loan refinancing can be a great option if considered at an opportune time. To that effect, if you are thinking of getting your car refinanced you need to make sure that:
- Your car must be valued more than the amount of loan dues being owed
- There are no closing fees or pre-payment penalties that are required to be paid
- New interest rate is less by at least 2 percentage points for recovering refinancing costs
How Long Should I Wait To Refinance My Car Loan?
You should consider applying for a refinance auto loan if you can get access to a lower interest rate and are able to save money by reducing monthly car payments significantly.
Interest Rates and Monthly Payments
If the interest rate on your existing car loan is high then you need to give car refinancing a try. Such a move may enable you to make monthly instalments more affordable and sustainable. Currently, the economic situation in the country has led to increase in number of borrowers who have gone upside down on their auto loans. It could be advisable to prevent yourself from getting into such type of a situation and refinancing might be the way out.
Undertake Cost vs. Benefit Analysis
Prior to considering refinancing an existing car loan, one must do cost vs benefit analysis meaning as follows:
- Total loan dues owed on original car loan – (savings that are likely to be accrued by refinancing + fees for refinancing)
- If this result is less than loan dues owed then refinancing might be a great idea. But you must be also aware that you may be required to pay penalty for an early auto loan pay-off. Consider that in your calculations.
Understand Some Common Prerequisites
Most of the car refinance lenders will have certain basic requirements for approving applications. It is important that you knew them before you proceed to apply. Accordingly, to be eligible for auto loan refinancing:
- Outstanding loan balances have to be more than $7,500
- Car to be refinanced must not be more than 5 years old
- Value of car must be more than amount of loan dues owed
- Borrower must be current on existing car loan payments for last 1 year
When Should You Refinance Your Car Loan?
There is a common misconception among people that the process for getting cars refinanced to lower interest rates is a complex one, very much similar to that of mortgage refinancing. If you are thinking in the same way then you need to know that in fact, the entire car refinancing procedure is simpler than you ever thought provided you approach the task in a correct manner.
By following a stepwise process, you could be in a much better position to get your car refinanced as well as save time and money. Consequently, you must first determine whether refinancing is the right option for your specific circumstances. Next check the eligibility criteria and then find out how much loan dues are still being owed followed by proper valuation of car that is to be refinanced.
Last but not the least, to get the best out of auto loan refinancing, make sure that the new rate of interest is 1 or 2 points lower as compared to what you are paying currently. Remember, refinancing attracts fees by way of closing charges or pre-payment penalties and if these negate chances of saving money, your decision to refinance your car could make little sense.
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