You desperately want some extra money and then, you see an ad on TV: Save money by refinancing your car! Is this a good idea? Auto refinance can be a perfect way of saving money on your auto loan, if it is done correctly. It enables you to negotiate for better interest rates or extend the term of your loan in order to lower your monthly payments.
What is refinancing?
Refinancing requires you to transfer the official ownership or title of your car from a creditor to another creditor. According to the former Credit.com consumer education president, John Ulzheimer, the assumption is “that is it” when you apply for a car loan. However, it is possible for you to refinance it if you are still making payments for your car loan.
Ulzheimer said that it is important for you to refinance your auto loan if there is an improvement in your credit score even by a mere 50 points. Likewise, LendingTree.com advises that it is prudent for you to refinance if the interest rates have since reduced but they were high during the purchase of your car. You should consider refinancing even if it would simply lead to a reduction of the interest that you pay every year by approximately 1 percent. However, shopping around will be necessary if you are looking for a better rate.
How to refinance
The process of refinancing is very simple if you get approval for it. Your new lender gives you a check, which you use for the payment of the old loan. You then start making monthly payments to your new lender.
The advantages of refinancing
The potential advantages that refinancing has are twofold: It can help in lowering the overall cost of a car and reducing the monthly payments that you make.
Another way of refinancing
If it is affordable for you, securing a lower interest rate and the lower monthly payments that result from it but continuing with the payments that you making before is another strategy for refinancing. Since you would have reduced the total cost that you would have financed by refinancing at an interest rate that is much lower, this will help in shortening your loan.
Of course, some borrowers will want to lower the payments that they make every month when they are refinancing. They can do this by lengthening the term of the loan for the vehicle and a person who need to reduce the payments that he/she makes every month in order to avoid losing his/her car could find this an acceptable compromise. However, since it makes the loan to cost more, it is not for people who want to save money in the long term.
According to Ulzheimer, this idea is not good if you want to get a nine-year loan from a four-year loan. In addition, since the resale value of your aging car (collateral) will not be enough, the refinancing options that are available from creditors when it comes to aging vehicles will be limited. Generally, refinancing the best option at the early stages of your car loan.
If you need help obtaining vehicle registrations, driving licences, and car tax, contact the DVLA.