It’s a nightmare that individuals face all too often. You’re offered a great car with “low monthly payments”, only to find that your car loan payments are pushing you to the poorhouse. If this scenario sounds familiar, you may want to think of an auto refinance loan.
“Refinancing” is a financial condition wherein a borrower finds a new source of financing to pay off a current loan. Many homeowners use this practice to pay off their present mortgages at more affordable rates. In fact, refinancing is one of the most well liked methods for people to arrange home loan financing.
The same practices and rules apply to auto loan refinancing. This is just the act of taking out one loan to pay off another. The objective is to allow the borrower to save some money on monthly loan responsibilities. Yet, it largely stays secret within the financing industry. People have been refinancing homes and putting aside thousands of dollars for years. And yet, the practice of auto loan refinancing is largely unfamiliar. This could be because car mortgages and loans are different, and people are naturally skeptical to take new risks. Despite their hesitation, many people would find car loan refinancing to be a good choice, provided the situation is right.
When is the ideal time to arrange auto loan financing?
The only means that this arrangement is going to save money is if the loan is refinanced while interest rates are low. Mortgage rates tend to shift with overall market fluctuations. In fact, if bank rates are low, then mortgage rates will tend to be low as well. Naturally, lower rates mean lower monthly settlements. This is the condition you should be aiming for.
Not everyone knows that money also holds a “time value”. It’s important to bear in mind that the longer you spend paying off a loan, the more money you will actually spend. So, your “low monthly payment” of $400 is not such a good deal if you’re paying over five years — or sixty months. By the end of the loan contract, you can end up paying more money on interest than you did on the principal amount. Auto loan refinancing can help you to minimize those excessive loan costs, and maximize your savings.
Who benefits from a car refinance loan?
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Almost anyone who is trying to recompense a current car loan can benefit from this plan. Even those car owners with poor credit are able to get auto loan refinancing as a means to lower their APRs (annual percentage rates). For example, you buy a Honda Accord for $16,500. You concur to pay off the amount at 21% APR at the end of six months. Your settlement is $446 monthly, giving you a total interest charge of $10,283 at the end of your loan period. For the next several months, this will be your monthly loan obligation.
Then, you opt to take an auto refinance loan. Your loan rate, this time, is only 6% APR — a difference of 15%. Your auto refinance loan wants a monthly payment of $319 with total interest charges of $2,639. You’ll save up to $7,600 in interest, as well as over $100 in monthly payments.
Of course, your situation will be different. However, you will save money with an auto refinancing loan at a lower fee. In fact, you can likely save a great deal of money and get on the road to financial recovery.
Filed under: Car Loans