How do you know when the time is right for car refinancing? Now that you know have a better idea of what car refinancing is – see “What is car refinancing? Mystery solved (Part 1)” on The Open Road – and know how much savings is possible, you’ll want to figure out if your current vehicle loan or recent personal financial history make you a good candidate. Here are some reasons to consider car refinancing:
- Interest rates have changed since you financed your vehicle in the first place.
- Your credit score has improved since you financed your vehicle.
- Your credit history is more established by paying consistently on your first car loan.
- Personal circumstances have changed (better job, new house, higher family expenses, etc.).
- You’re in a lengthy loan (five to eight years), which carries a higher interest cost.
- You didn’t get the best rate when you purchased your current vehicle.
- Your lease is expiring and you want to purchase the vehicle.
And, generally, the more recent the vehicle model, the more willing lenders are to refinance. Whatever the reason(s) for car refinancing, you may be able to reduce your payment, reduce your loan term or both as the result of lower interest rates and, consequently, lower interest expense. Let’s look at car refinancing for a 3-year-old vehicle with a price tag of $40,000 financed at 10 percent interest for seven years (payments of $664 for $55,776 total cost with interest) on which the borrower still owes the lender about $32,000. If he/she takes out a typical five-year refinance loan, reducing the interest rate from 10 percent to five percent, the monthly payment drops more than $61 to $603. Over a year, that translates to more than $700 and over the five-year term of the loan to more than $3,600. Even a three-percent cut in the loan interest rate saves the borrower about $30 monthly, about $360 a year, and something like $1,800 over the five-year term of the refinanced loan. (RoadLoans cites a typical savings range from $70 to $100 a month, which is $840 to $1,200 a year or as much as $6,000 over five years of a typical loan term. The monthly savings is a result of a longer term, lower interest rate, or both, and is based on a comparison of a new loan with RoadLoans and a prior loan. Savings may vary, and your savings may be different.) Most lenders have requirements that borrowers must meet for their car refinancing to go through. Those requirements may include the age of the vehicle, mileage limitations and the type of refinancing. For example, see RoadLoans car refinancing criteria. And for more on car refinancing, see “Save money by refinancing your auto loan,” “Vehicle financing or refinancing easy as 1-2-3” and “How does refinancing a car work,” all at RoadLoans.com. If you need fast-and-easy vehicle refinancing for your car, crossover, pickup or SUV, visit RoadLoans.com for the solution.Written by Mark Macesich