Refinancing an Auto Loan

Save Money by Refinancing Your Auto Loan

Refinancing an auto loan is one of the few money saving proposals that actually make some sense, but only if you wind up with a lower interest rate and you do not extend the time it will take to pay off the car.

Unlike mortgages, there are few fees attached to a car loan and they are relatively minor, usually having to do with transferring title to the new lien holder.

So if you can find a lower interest rate that allows you to get your auto loan paid off in the same time as your original loan, but at a lower interest rate, go for it.

This kind of refinance is only going to work if the car is relatively new and in good shape. If you have a five year loan and try to refinance in the third or fourth year, you will probably find that the bank will lend you less that what you already owe.

The newer the car the better. I once bought a car using dealer financing, which was fairly expensive. Within two weeks of getting the car, a local bank starting advertising car loans at much lower rates.

Because the car was new, I had no problem borrowing the same amount of money from the bank and wound up cutting my payments by at least a third.

Interestingly, after I paid off the original loan, I got a call from the first lender asking me why I paid the loan off so fast. When I told him about the lower rate, he told me I should have called them first – that they would have matched the deal.

In any event, cars depreciate rapidly. But many people go into 60 month auto loans in order to afford the payments. So don’t expect car refinancing to work after a year or two.

If you’re going to refinance your car, shop around and see who has the best deals. Don’t forget to include all fees you might be charged.

If you will come out ahead, first call your present lender and see if he’ll match the deal.

If not, apply for the better deal.

It really makes no sense stretching out the length of the loan in order to lower your payments. While cars are better built now and hold their value longer, lots of people with 60 or 72 months loans find themselves with a car worth less than their loan balance.

If you are looking for lower payments, but can’t get a lower rate for the amount left to finance, it would make more sense to sell the car and buy a used or much cheaper new car, perhaps one with special manufacturer financing.

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