Refinancing Your Auto Loan

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.