Why Would you Want to Refinance your Auto Loan?

By: Gregg Pennington

You may not have considered refinancing your auto loan. Perhaps you have only a year or less before your current car loan is paid off, or you are satisfied with your current interest rate. Auto loan refinancing may still be a viable option for you; here are some situations where it might benefit you to refinance your auto loan.

The longer repayment time you have left on your current auto loan, the more savings you will realize by refinancing your loan at a lower interest rate. Assume you borrowed $15,000 on your current auto loan for 60 months with an interest rate of 10%. Your monthly payment would be about $319. After paying on the loan for one year, the remaining balance would be approximately $12,566. If you refinanced the balance for 48 months with an interest rate of 8%, you would lower your monthly payment to around $307 while not changing the payoff time of your loan.

If, however, you want to lower your monthly payments dramatically, the answer is not only to try to get a lower interest rate on your auto refinance loan, but also to extend your repayment time. If you take the balance of $12,566, and amortize it over 60 months with an interest rate of 8%, you would lower your payments to $255 per month.

What if you only have 2 years left on your auto loan? Using the above example, at this point you would have a balance on your loan of about $6907. You could refinance for 24 months, lowering your payments to $312; probably not even worth your time. Even if you were able to get an interest rate of 6%, you would only lower your monthly car payment to $306

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