Is it Bad to Refinance Your Auto Loan?

If you own a car, chances are high that you also have an auto loan. Most of us need help financing a car purchase, and we work to get the best financing possible. However, don’t stop managing your auto loan now that the car sits in your driveway. Like other loans, it’s possible to refinance your auto loan, and for good reason, you should consider this option. It is not bad to refinance your auto loan if you understand the way the interest rate, fees, and terms can work in your favor.

Reducing Your Payments

It may be tempting to focus on a low monthly payment, but that would be a mistake. Just because you pay a little less each month does not mean your overall costs are low! Think about the total amount of the car and try to reduce the percentage you pay of that cost. The tricky part of the monthly payment is that too many forget to ask the important question, “For how many months?”

If you focus on your monthly payment, then you may make the mistake of ending up upside down on your car payment! You might be paying more than the cost of your car! If you are paying a small amount for a very, very long time, then you may be in position for disaster. Avoid losing money by refinancing your loan based on the interest rate, the amount you pay back.

Costs For Financing

When you look for a lower interest rate, also make sure you consider the costs for processing your loan refinancing. There are fees involved that cover the administrative work of the institution processing your loan refinancing. These fees may add up, so be sure to find out the costs up front to avoid surprises. If you end up paying more in fees than you save on the interest, then you want to think about shopping around for better, budget friendly fees.

The lending institutions have advisors who can answer questions before you start the process, and it’s important to talk to them first. Find out the fees involved in their refinancing process as well as the interest rate, and work with them to calculate the amount you save. The goal should be to spend less, and while fees may be involved, they should not off-set your savings from refinancing.

Lessen Lending Terms

There is another advantage to lowering the interest rate of your loan that makes the process well worth the effort; you might pay off the whole loan faster. If you reduce your rate, you could pay more toward the principal, the amount you borrowed. The faster you pay off the principal, the less interest you pay, and the more money you save.

When you refinance your auto loan, look at reducing the costs of borrowing so you can increase your repayment amount. If your monthly payments are more toward the original amount that you borrowed and less toward the cost of owning the loan, the interest, then you’ll pay off the loan faster. The terms of an auto loan differ from a home loan because they are shorter, but you could make this work to your advantage with a lower interest rate.

Schedule Your Consultation

Start today with a phone call to begin the conversation. It’s not bad to refinance an auto loan when you work with a financial advisor who understands the goal is saving money. Find out the fees, terms, and rates that make refinancing your auto loan a good financial practice.

Call Millstream Area Credit Union to speak to one of our trusted representatives who can answer all your auto refinancing questions today.