If you’re looking for ways to cut your monthly expenses, refinancing your auto loan may be a viable option. Many people consider refinancing their auto loans in hopes of getting a better interest rate or a lower monthly payment. While refinancing an auto loan could potentially better your financial situation, there are circumstances in which sticking with your current financing is the better option. To decide whether or not refinancing is right for you, here are 4 questions to ask when you’re considering refinancing your auto loan.
What will my new payment be?
For most people, the purpose of refinancing an auto loan is to lower their monthly payment. There are several factors that will determine what your new monthly payment will be, including interest rates, your credit score, the length of the loan, total loan amount, and the current value of the vehicle. In some instances, the little amount you may save on your monthly payment isn’t worth stretching out the loan term or accruing additional interest. Ask your loan advisor for a quote so that you can compare your current monthly payment to the refinanced monthly payment.
What will my new interest rate be?
Because the interest rate will have a direct effect on your monthly payment, knowing what your new rate will be is important. If your previous loan had a high-interest rate, a lower rate could lower your monthly payment considerably. If your credit score has improved since the time of purchase, it’s likely your new interest rate will be lower. However, if your score has dropped or your vehicle has significantly depreciated in value, you’re likely to receive a higher interest rate. Knowing what your new interest rate will be is an important factor when considering refinancing options.
How long will my new loan term be?
Refinancing your auto loan at a lower interest rate may result in a lower monthly payment, but you may actually end up paying more over the life of the loan. A longer term, even at a lower interest rate, means you’ll pay more in interest over time. If your current financial situation would benefit from a lower monthly payment, than the tradeoff may be worth it. However, it’s important to consider whether extending the life of your loan could result in eventually being upside-down, owning more than the car is worth.
Are there any additional fees for refinancing my auto loan?
Make sure you read the fine print and ask for clarification when needed. Some loans may include an early termination fee or transaction fees. Generally, refinancing your auto loan shouldn’t cost you an arm and a leg in fees. Auto refinancing fees for documents and title transfer are usually fairly inexpensive. If a lender is attempting to charge you large fees for refinancing an auto loan, it may be time to shop around for a better offer.
When it comes to refinancing an auto loan, you want to make sure you’re getting the best deal possible from a lender you can trust. At Camino Federal Credit Union, we offer competitive interest rates and up to 125% financing. Our Member Advisors are here to assist and support you through every step of the refinancing process to ensure that you receive the best possible outcome.
If you’re ready to refinance your auto loan or want to discuss your refinancing options with one of our Member Advisors, contact us at 1-800-835-3400 and you can also check us out online at caminofcu.org