Why refinance your car loan? 5 reasons to do it...
Adam Rifkin stashed this in Personal Finance
Main points of the article:
Unlike refinancing a mortgage or consolidating credit card balances, refinancing a vehicle loan is fast and easy.
No appraisal is required. Usually there are no fees, too.
- Finding a lender that refinances is easy. Credit unions do big business in car loan refinancing; simply open a checking or savings account at one if you're not already a member.
5 cases when refinancing an automobile loan makes sense, from the article:
- You didn't get your best rate when you purchased. Just because you had a high credit score and unblemished credit history doesn't mean you got the best rate you could have received when you purchased the car. Dealer-sourced vehicle loans commonly carry a higher rate than the consumer deserves because the consumer simply didn't know better. The extra money is a profit source to the dealer, like rust-proofing or extended warranties. When this is discovered after the fact, it may pay to refinance.
- Interest rates have dropped. If interest rates have dropped more than a couple of points since purchasing your vehicle, you could save some money. In this case, loans at refi rates are considered used car loans and as such, the rates usually are higher than new car loans. Remember, even a percentage point or 2 can make a big difference over the life of the loan.
- Your credit score has improved. If you had a few negatives on your credit report -- or had no history of credit -- when you bought your car, but your credit is healthier now, you may qualify for a lower interest rate. Interest rates of 18% or more for consumers with a thin credit history are common. Several months of on-time payments could entice a lender to refinance that loan at a lower rate. Steve Schooff, a former spokesman for Capital One Auto Finance, says consumers should check their credit scores before refinancing.
- Your personal financial landscape has deteriorated. If you have had a financial setback and need to reduce your payments, refinancing could be a solution by increasing the loan term, thereby lowering the monthly payment.
- Your car lease is expiring and you want to purchase the vehicle. When you fulfill the terms of a lease, you typically have the option to buy the vehicle.
Bottom line: If your initial car loan was through the dealership, you can save a lot of money by refinancing it through a credit union.