Refinancing an auto loan can save consumers thousands over the long term. But why is less than 15% refinance their car loan? One survey shows how consumers feel about car loans today, and what factors impact their decision-making.
The survey results showed that only 20% of respondents aged between 30 and 44 took advantage of these options. Refinancing a mortgage is becoming more popular than refinancing an automobile loan. However, Auto Refinancing can be the best option for consumers.
Your credit score can improve over time, especially if your credit history is longer, has paid off loans, made timely payments, and/or had a good credit rating. Your credit score can improve, which will allow you to get lower monthly payments and better auto loan rates. You may be able to pay the loan off faster if you have lower monthly payments.
Your credit score is an indicator of creditworthiness and risk when you apply for an auto loan. People with lower credit scores might pay higher interest rates for loans. However, those with excellent credit may receive extremely low-interest rates. Buyers with lower credit scores and higher interest rates may be able to get longer terms for a more affordable monthly payment. This reduces monthly payments, but it can also increase the amount owed in interest.
How Do You Refinance?
The process of refinancing a loan is similar to applying for one. Lenders will review your credit score and your employment history to assess your credit risk and worthiness. Your new loan terms could be affected if you have a high credit score. A stellar credit score can give you an edge if you have a high-interest car loan. Even if your credit score isn’t great, if you are punctual in paying your car loan payments, lenders might refinance your loan.
Lower Rates Could Mean Serious Savings
Refinancing an automobile loan can be done for a lower monthly payment. This is why most people refinance their mortgages. The difference lies in the cost. Refinancing a vehicle loan is free from pre-payment penalties, fees, and closing costs. Consumers can also save interest costs by having their car loan rate lowered. A one percent reduction in your interest rate can have a significant impact on what you owe each month. The impact on your monthly budget will be greater if the old loan had a 10% interest rate, and the terms of the refinance are lower at 5 percent. Any reduction in principal balance can also make a difference in the monthly payments you will be making when you re-fi.
Although not all refinance terms offer the same savings, a lower rate of interest will almost always result in a lower monthly payment. Refinancing can also have a positive impact on other terms of your loan, even if it does not result in a lower monthly payment.
What Is The Best Time To Refinance?
According to experts, the best time to refinance a loan is when interest rates are dropping. You may still qualify for a lower rate even though the Fed slowly raises rates. The interest rate for a consumer with a subprime credit rating is usually higher than the average loan rate. An excellent credit rating, including one that is prime or gold, can lower your risk of lending and put you on the right track to securing a traditional rate.
You should explore other options if you believe you can get a better rate from another lender.