RULE No. 1 – Never lose money
RULE No. 2 – Never forget RULE No. 1
– Warren Buffet
When one of the richest men in the world talks about money, everyone should pay attention. His advice is helpful to everyone, including people with auto loans. If you have a car loan and are losing money due to high interest rates, you need to take steps to save your hard-earned money.
You can save money by applying for a refinance because it will help you get lower interest rates and affordable monthly payments. When the refinancing process begins, you apply for a second loan to pay off your first loan.
When should you apply for refinancing?
Although it is a good money-saving measure, you should not go for it without a thorough understanding of your situation. If any of the following situations apply to you, only then should you start the refinancing process:
Is there a significant drop in interest rates?
Check current interest rates for a used car loan in your area. If interest rates have dropped dramatically since you bought your car, you could save money by refinancing your car.
Is there an improvement in your credit score?
Your credit score is an important factor in lenders determining your interest rates. If you had a bad credit history or zero credit score when you bought your car, you may have received high interest rates.
If you want to start the refinancing process, check your credit score. If your credit score is healthier and has improved considerably, you can apply.
Is the term of your loan long?
Most people focus on lower monthly payments, but they forget to consider the term of the car loan. A long-term loan is bad news because it means that you have to pay interest for a longer period of time. Therefore, if your loan term is longer than five years, you should opt for refinancing and choose a shorter loan term. It will help you reduce the total amount of interest.
Is there a prepayment penalty?
Before opting for refinancing, you should consider the terms and conditions of your current car loan. There are many lenders who charge high prepayment penalties for defaulting on the loan agreement. You should elect to refinance only if the penalties do not negate the savings you will receive by refinancing your car loan.
Is your car rental expiring?
Under a car lease, the finance company buys the car and then rents it out for regular rental payments. At the end of the lease period, you have the option of purchasing the car or returning it to the finance company. If your car lease expires and you don’t have money to buy it, you can choose to refinance it. The refinance option is also useful for those people who want to get out of their current lease.
Where to look for refinancing?
Once you are sure of refinancing, you have several options to start the process. You can apply for refinancing at your local bank or at a credit union. You can even visit the websites of various online car financing companies and choose one that offers you the best interest rates.
All the best to find a better car loan!