According to finance experts refinancing your car that is possibly your single-largest purchase after your home, could potentially save you hundreds of dollars. It makes complete sense to examine the possibilities of refinancing, however, you should be extremely careful of the many hazards the dot the road to savings. The easy way to find out more about the refinance rates is to go online to any of the many websites offering such services. Make your query with the information required, typically the loan amount, your credit score, and your location. You will then be able to get details of banks and credit unions with the interest rates listed, along with the monthly payments, and loan tenures. Usually, credit unions offer better rates than banks as these offer loans to their members only.
Potential for Savings?
Among the main reasons why you could save substantial amounts of money by refinancing your car is the improvement of your credit score since the time you have originally taken the loan or the interest rates themselves could have fallen in that time.
For example, a new car bought in April 2013 for $27,500 at 4.1% interest repayable in 60 months would attract an EMI of $508. After the 24th payment, the balance of the loan, i.e. $17,170 could be refinanced for the remaining 36 months at just 1.5% from a credit union, a rate commonly available at that point of time. The move would cause the monthly payment to dip to $488, saving you $20 each month and a handsome $720 over the balance 36-month term. You could also save a lot of money by selling off your car and taking your pick from a large selection of certified pre-owned cars that cost a lot less.
Younger the Loan, More the Savings
Since the interest component is more than the principal repayment during the first half of the loan, it is obvious that you will be able to save more, if you refinance earlier. In the example quote above, if the car had been refinanced only after paying 12 monthly payments, you would have got the 1.5% loan for 48 months, necessitating an EMI of only $482, saving you $26 each month or a very substantial $1,248 over the four years remaining. However, it is best to approach your existing lender armed with the knowledge of the market rates before opting to refinance. You could be surprised how easily your lender will agree to drop the interest rate simply because he would like to retain his customers.
Watch Out For the Potholes
According to experts at Ideal Auto USA, if you do want to go in for refinancing, you should carefully look at the terms and conditions of your existing loan agreement to ensure that there are no penalties applicable for repayment of your loan. Stiff penal clauses may not make it worthwhile to switch loans. You also need to look beyond interest rates of the new lender to make sure you are eligible. There are some lenders that specify a minimum amount of refinancing or lay down terms limiting the age of your vehicle or the mileage on the odometer.
Getting the Best Deal
The key to getting the best interest rates is your credit score. If you know you are going to be in the market fishing for loans, you should take care to ensure that your credit is the best possible that you can attain. You can do this by not defaulting on credit card payments or the car monthly payments. Try not to succumb to the lure of extending your loan period to take advantage of the lower monthly payment. This route means that you will end up paying a lot more interest. The shorter the loan period, the faster is your financial freedom.