Saving money on your car loan can be tricky, especially because it can be difficult to negotiate with your lender to lower your monthly payment. For many people, paying each month on a vehicle that they were able to afford in better times but that is now too expensive can force them to make sacrifices they otherwise wouldn’t make. Fortunately, refinancing a car loan can allow a person or family to save money on their vehicle without giving up their mode of transportation.
Rising values on used cars combined with historic low rates on car loans have made now a great time to consider refinancing a car. While this a relatively small part of the consumer finance market, it is one that is predicted to grow a lot as more people look to save money on their bills and plan to keep their vehicles longer.
In general, car loan refinancing can save a person or family money in two different ways. First, refinancing an auto loan will give a consumer a lower interest rate. This will lower the total amount of interest paid over the life of the loan. Secondly, it stretches out the period of time over which a person will make payments on their vehicle.
Lowering an interest rate is a good idea for just about everyone, not just people who have trouble paying their bills every month. By lowering your interest rate through an auto loan refinancing, the amount the consumer pays each month in interest charges will be reduced. Depending on how the new loan is set up, a person is able to either pay more towards the principal every month, or make a lower monthly payment.
In addition to saving money from a lower interest rate, a person or family can also save money each month by stretching out the payment term on their loan. For example, a person with two years left on their present auto loan may choose a five year payback term on their refinancing. This means that he or she will be paying a bank the money they would have spent over two years over a period of five years. When combined with a lower interest rate, this could potentially lower a person or family’s monthly payment by more than half.
In order to be a good candidate for refinancing, there should be some equity on the vehicle. Of course, a good credit score and a history of on-time car payments also helps. Fortunately, many banks are willing to overlook some or all of these factors in order to earn business from new customers.