In general, the two largest loans that consumers take out, are
for homes and cars. The reasons to refinance a car loan, are the
same as those for a home- lower interest rates, and reduced payments.
Your new lender will pay off the original lender, and the vehicle's
title will be transferred to them.
The Benefits
Auto loans are now available at very low rates. If you have an
older loan at a higher rate, it makes sense to refinance. First,
consider if there is a pre-payment fee, and how that impacts on
the full term cost of paying off your loan. At a lower interest
rate, you may be able to make smaller payments over a longer period
of time, although that will cost you additional interest. Or,
you can take the money you are saving from the lower rates, and
apply it to the principle, to pay the loan off faster.
The Costs
Refinancing may incur prepayment fees that negate the savings
on lower interest rates. A great deal depends on the length of
the loan term, and how much lower the rate is from your present
loan. There are also a couple of low fees that vary by lender
and state, including the lien holder transfer (under $15), and
state re-registration fees (under $80).
The Savings
How much you save by refinancing depends on such things as prepayment
fees, and what kind of reduction you get on the interest rate.
The outstanding amount on the original loan, and the term you
negotiate for the new loan, are also key factors. Ask your lending
institution to work out the figures for you, on paper. Check those
figures with an accounting or banking professional, or even an
online loan calculator, to make sure you really are getting the
best deal.
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