The goal of an auto refinance loan is to secure a lower APR, but there are many other things to consider when you plan to refinance. The type of interest you get could change, too – your original loan might consist of a variable APR whereas your refinanced rate could be fixed.
Variable APRs for car loans are not as common as fixed-rate loans, but they could happen. If your original loan is variable, it may be worth your while to consider refinancing to a fixed rate so you could lock in a solid rate for the life of the loan.
One of the primary reasons to refinance your auto loan is to lower your monthly payments. You could knock dozens of dollars off your payments, which could help you reorganize your finances and stick to your monthly budget.
If your credit score has improved since you took the last loans or if the federal interest rates have lowered, then you may actually get loans with less interest, which in turn may help pay the loan faster.
If you have more than one loan, refinancing can consolidate your debt into one monthly payment instead of several small payments. This gives you more financial stability and it’s easier to keep track of and organize.
Additionally, depending on the type of loan you have, you may be able to make a few extra payments to lower the size of your debt.
Depending on the kind of loan agreement you have, you might be able to make extra payments to chip away at your debt without refinancing, but be sure to confirm that there aren’t any early repayment penalties.
The best way to reduce your monthly car payments is to refinance your loan with a lower APR and a longer loan term. Extending the loan term divides your balance into more months, giving you more time to pay and reducing the amount you owe each month.
Lowering your monthly payment can help you relieve financial pressures in other areas. For instance, you may have unexpected medical bills or other sudden expenses to take care of. By refinancing to a lower APR, you could spend less on your auto loan and have more money to use on other bills.
Other factors to consider when refinancing your auto loan include your choice of lender. Credit unions typically offer the lowest APRs and most flexible loan terms. Even if you are not a member, it may be worth it to join, even if you have to pay membership fees.
However, you should always consult multiple lenders to compare rates and terms. It’s the only way to find the lowest rate and best term for which you qualify.