When you refinance your car, you take out a new loan and use it to pay off the existing loan. This can be done through the current lender or through a new financial institution. It is not simply a change to your existing loan, but requires much the same application process that is involved in a new car purchase. You will fill out a loan application and a credit check will be run.
The main reason people choose to refinance is to get rid of high interest rates. This is usually due to having bought the car with poor credit, but it can simply be because the interest rates have dropped since your purchase and you would like to take advantage of this. Either way the process is the same. You will need to be approved for the new loan before going forward. For this reason it only makes sense to attempt to refinance if your credit has improved or stayed steady at a good score.
Loans with high interest rates are the ones most people want to refinance. When interest rates are low is the prime opportunity for most people to refinance, but remember that bad credit auto loan refinancing is only worthwhile if your credit has significantly improved! The low interest rates you see advertised are usually aimed at people with the best possible credit score, and you might not qualify.
Still, if you have been paying a very high rate, even getting down by a few points can reduce your monthly payment and might be worthwhile. Just remember that there are some details to keep in mind. When you refinance you start the loan over. This means that you will be paying on your car for a longer period of time before you own it. If you are nearing the end of your loan, you might find it makes more sense to just ride it out. There may also be fees and charges associated with refinancing that you will have to pay.
If you have a high interest rate and a lot of time left on your loan, refinancing is usually a good choice, as long as you can qualify for a better rate.
How much money you will save really depends on the current terms of your loan and what interest rate you will qualify for. For some people with very high interest rates, the savings can be very significant. Also, when you refinance to a lower interest rate more of your payment will go towards principal and less towards interest, helping you pay your car off faster.
It takes only some simple calculations to find out how much you will save by refinancing. If the monthly savings are considerable, then going through the loan process is well worth it. You will pay longer on the car, but in the end a smaller amount of your money will go towards interest. You'll be putting more money towards the goal of actually owning your car outright. Use an online car loan calculator to play around with numbers to see how much you will save.
Bad credit auto loan refinancing or simply refinancing to take advantage of a great interest rate should be approached in much the same way as any major financial decision. In many cases the pros will greatly outweigh the cons, but it is important to be aware of what those are before you move forward.
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