Almost everyone knows that you can refinance your home mortgage to save some cash on your monthly payments when rates fall (as, for many people, they have at present), but were you aware that you can also refinance your auto loan? Auto loan interest rates are also very low at the moment, even though it tends to be the cost of mortgages that gets all the attention. That’s with good reason – heaven knows that homes are much more expensive than cars, and you tend to save a lot more money by shifting your home’s interest rate. That certainly doesn’t mean that you can’t win out by refinancing to get better terms on the deal of your car loan, however. In fact, if you have purchased a car in the past year and feel that your monthly payment is a bit too high, you might owe it to yourself to check out this option!
You might be surprised to find out that your loan is probably inflated, even if you have perfect credit, if you got your loan through a car dealership. When you buy your car and finance it at the dealership, your dealer acts as a middleman in the financing and gets a cut of the percentage as profit. The internet has made it so that car shoppers are wiser than ever about what dealers actually pay for cars, and few are willing to pay the sticker price. With their ability to profit off new cars severely limited, dealers are turning towards auto loans as an avenue to raking in higher profits than ever before. If you refinance your car loan, you will be cutting the dealer percentage out of the equation entirely, definitely saving you some cash.
Bankrate.com gave this pertinent and relevant example of how YOU could be saving money on your auto loan with a refinance. Let’s say that you borrowed a perfectly-average twenty thousand dollar loan on your new car, at a perfectly-average ten percent interest rate. Between lower overall rates and cutting out the dealer’s portion of the interest charge, you could easily refinance into an eight percent three-year auto loan, which is the mean going rate these days. That move would save you two hundred fifty dollars per year (over twenty dollars per month!), and close to one thousand dollars if you have the average four-year loan on your vehicle.
If you have ever been through the hassle of refinancing a home mortgage, you might be cynically thinking that no power on earth could make you go through that process. Luckily, I can say that car loan refinances are nothing like their much more complicated mortgage counterparts. First of all, you won’t need to go through the trouble of getting an appraisal like you would have to on your house. Secondly, the approval process is infinitely quicker – you could be approved in as little as one hour after filing your application online. You will shortly receive an offer from your chosen lender for a refinance deal. If you choose to accept the offer, be prepared to fill out the required paperwork. Documentation you will need to provider would include a copy of your car’s title and your auto registration. You’ll need a payoff quote from your original lender, documentation of your current outstanding balance, and documentation of your current interest rate. After you compile this information, it shouldn’t take more than a day or two to finish things up and officially have your new loan deal in place.
The fees you can expect to pay will be less than those you would pay with a mortgage refinance, but you will still have to pay some. Depending on what lender you utilize and where you live, these fees shouldn’t amount to more than around twenty-five dollars. But there may be certain extra fees. Bankrate.com mentions that Bank of America charges two hundred dollars to process an auto loan refinancing, but that is inclusive of the bank transferring the auto title on your behalf as well. Most people will be able to afford these fees without too much trouble, in other words.
Of course, many people might end up disqualified from the loan refinance process due to the fact that credit standards for all forms of lending remain very strict in this day and age. You won’t need a sterling 800 FICOI score to get you in the door, but better-qualified individuals will always have an easier time obtaining loan products of all types. A few tardy car payments shouldn’t wreck your chances, but your credit report will need to be clear of all significant blemishes that might give a bank cause to worry about your ability to pay back your new loan. The exact standards to which you will be expected to qualify will vary on the basis of your specific car (including general age and odometer reading), but expect to need to have less than one hundred thousand miles on your car and have it be less than seven years old. Many lenders will also require that a certain balance (say, seven to ten thousand dollars) remains on your original loan. For most people, that will mean that you need to have at least a year of payments remaining. For those who have seen an improvement in their credit since originally financing their car’s loan, the opportunity to refinance could be an amazing one indeed!
For those able to meet the criteria and willing to go through the process of obtaining a refinance, the rewards can be great. Right now, individuals with the best credit scores could qualify for auto loan interest rates as low as five and a half percent. Those with lousy credit could pay over eighteen percent interest. Of course, the relative value of a loan refinance depends on your current interest rate as well! Luckily, it is pretty easily to scope out what you would be looking at with a possible refinancing of your auto loan. Numerous banking sites have calculators designed to give you rates and let you know what your new monthly payments could be.
The Better Business Bureau has warned American drivers not to mix loan refinances up with loan modifications. Due to the poor economy, a slew of auto loan modification scams have been making the rounds. Scammer companies claim that they will work with your lender to negotiate lower payments – in exchange for a fat fee, of course. These services do nothing for you, and the companies are known to just run away with customers’ money. Stick to legitimate companies at all times when dealing with anything financial!
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