A lower monthly payment on the car, what more could you ask for?
It is an attractive proposition, but refinancing a car loan can often increase the amount you have to pay over time.
In recent years, a growing number of consumers have been opting to refinance their auto loans.
In fact, last year, questions about the refinancing of loans nearly doubled in www.LendingTree.com compared with a year earlier, according to the cyber service loans. The completed loans increased by 47 percent over the previous year, according to the firm.
But when it makes sense to refinance the loan to buy a car? Here we offer several factors you should consider:
Refinancing your car loan allows you to pay your lender and commit to a new loan but with a more favorable rate of annual interest.
That means that, in general, should not consider refinancing unless you can get a rate lower interest. Of course, if you’re going to reduce your monthly payments and at the same time you want to extend the repayment period of your loan, you will probably have to pay more money over time.
It is important to have on hand your purchase and you check how many years is the loan, how much they still owe and the current interest rate.
Unlike refinancing a mortgage, lenders usually do not charge fees or closing costs to refinance a car loan. That’s why you should give priority to research into several parts to find the best interest rate.
For example, in recent weeks, LendingTree has offered refinancing car loans with an interest rate of 1.99 percent for borrowers who have good credit history.
In Bankrate.com you can include the name of your state and city, and the site will provide a list of lenders and their rates. Be sure to check the duration of the loan, as the rates are different for each term.
The most attractive result in any refinancing is to reduce the amount you’ll pay for the duration of the loan.
Maybe you did not do a good search when you went to buy your car and you could have negotiated a rate lower interest. Or maybe your credit score has improved significantly since you took the loan of your car, so you can now opt for a lower interest rate. In general, refinancing can cut your financial costs.
Paying your original loan when you refinance can help strengthen your credit score, since the loan appears on your credit report as settled.
The websites of lenders and financial information usually offer calculators to help you estimate whether a new loan can help you save money. For example, you can check auto refinance calculator.
Many free financial applications are available for smartphones and tablets.
Extending the term of the loan of the car can be risky because, unlike homes that can increase their value, vehicles depreciate over time.
Therefore, extending the loan implies that you will have more money than the car is actually worth when you finished paying.
“It’s a terrible situation if you the car is stolen, you are involved in a serious accident or need to sell desperately,” says Gillis.
A rule of thumb is that if there is less than two years left to repay the loan of your car, you avoid the refinancing.
“If money is a problem, that’s something to consider, but I would not,” says Rick Finch, CEO of LendingTree car segment.
Banks often put limits on the amount you pay and the refund period for a refinance.
They can also limit the types of vehicles that are eligible for this type of transaction.
Some lenders will not refinance motorcycles or motor homes, for example. In addition, lenders typically refinanced only vehicles with no more than seven years.
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