You can save a bundle by refinancing a loan on what may be your second-largest purchase next to a home — your car.
However, there are a few things you need to watch for to avoid potholes on the road to savings.
Compare rates and terms on the websites of your local credit unions and banks. And don’t forget to ask your current lender for refinance rates. Many will refinance your loan at a rate below what you’re already paying because they want to keep your business.
Once you’ve gathered rates, compare them with your current loan terms. Perhaps you tuned up your credit score or joined a credit union so you can qualify for a better rate than you got when you bought the car.
If poor credit is preventing you from finding a cheaper loan, you may need to first take steps to improve your credit score.
Watch out for potholes
If you find a loan at a favorable rate, that’s a great start. But read the fine print on all contracts. You need to know if you will pay penalties for paying off either your original loan or your refinancing package early. If so, refinancing may not make sense.
Also, be sure to consider the overall cost of the loan. You may be refinancing in order to get lower monthly payments over a longer term. That’s fine, but remember that taking the scenic route will cost you more in interest.
Shortening the term of the loan allows you to build equity in your car faster. Even if your monthly payment goes up, and you can afford it, you’ll pay less over the lifetime of the loan.
Either way, refinancing an auto loan should not negatively impact your credit score in most cases, reports CarsDirect. Just make sure you go through a reputable lender so your old loan is satisfied (the new lender pays it off when it issues your loan). Then make full, on-time payments on your new loan.
What’s your experience refinancing a car loan? Have you found it worthwhile? Share with us in comments below or on our Facebook page.
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