Refinancing Your Auto Loan Can Lower Your Payments
If you bought your car and paid more than 3% interest, you should consider it as an option to save you money each month and for the life of the loan.
GREENSBORO, NC – The place you call home is expensive. The mortgage or rent is your biggest bill every month. Usually your second biggest payment is probably your car.
While refinancing a home to save money is common, most people don’t realize that you can refinance your car loan as well.
“Cash is so essential for so many Americans right now and it’s one of those unique products that sits at a crossroads consumers don’t really know it, but it’s hugely impactful and potentially beneficial.” said Jon Salzberg, Credit Karma Auto Team.
Basically, it just replaces your current loan with a new loan from another lender, but with a much lower interest rate.
Current loan: $ 10,000 at 9% interest, for a total of $ 12,455
New loan: $ 10,000 at 3.1% interest, for a total of $ 10,811
With the new loan, you save $ 1,644 and your payment goes from $ 208 to $ 180.
“The other thing to watch out for are prepayment penalties. So sometimes the loans you take have a prepayment penalty that would benefit from refinancing, mitigate the benefits from refinancing,” Salzberg said.
You can shorten or lengthen the term of the loan, or keep it as you currently have it. There is no limit to the number of times you can refinance.
But if you go this route, you’ll need to have made six to 12 months of payments on time to make it worth it.
On average, consumers saved $ 52 per month refinancing auto loans when they wanted to reduce their payments, according to a TransUnion study of 1.5 million auto loans refinanced in 2013 and 2014.
On average, consumers reduced the interest rate by 2.4%.
The average monthly payment for an auto loan is between $ 500 and $ 525, which means that some could save around 10% per month.