Auto Refinancing: A Simple Solution To High Auto Loan Payments

Has your monthly car payment put you in over your head? Let the BuyingAdvice Team show you how auto refinancing might be the solution.

Now, when we talk about refinancing, you're probably thinking in terms of mortgages, which come with a number of fees and stacks of paperwork. This often keeps borrowers from even considering refinancing for their car, but in fact auto refinancing is a much simpler and cheaper process. For instance, there is no appraisal process to go through with a car, as values are already marked in price guides like Kelley Blue Book. Instead, auto refinancing typically only involves a brief application, and a nominal lien filing fee, which varies from state to state, but typically is no more than $65.

Now that you know how easy and cheap refinancing can be, how do you know if it's right for you? If you're in one of the following scenarios, then you should strongly consider getting an auto loan quote:

Buyer's Remorse. You didn't shop around for financing and got slapped with a high interest rate. Refinancing can lower this rate and save you money.
Improved Credit. Your credit score was less than stellar when you bought the car, but has since improved. Refinancing can lower your interest payments.
Budget Crunch. You bought a house, or maybe you were laid off, and your budget's tight now. Refinancing can help you stretch out the loan, and maybe cut the interest rate. However, unless you're unable to afford your current monthly payment, you should never agree to a longer loan period. Sure, you might get a lower interest rate, but any savings will likely be cancelled out by the increased time you'll be making interest payments.

There are also times when refinancing is ill-advised or pointless. For instance:

Unchanged Credit. Unless overall interest rates have dropped significantly, you'll get about the same, or even a higher, rate.
Damaged Credit. If your credit has actually worsened since you got the original loan, refinancing might actually raise your rate.
End of Loan Period. If your auto loan has a year or less left on it, then at this point, you're probably not paying much in interest anyway. Refinancing won't make a difference.

There can also be some drawbacks to refinancing. For example, if the car in question was new when you bought it, you got a new-car rate on your loan. When you refinance it, you'll be getting the used-car rate, since it's technically a used car now. What's the difference? Used-car loan rates are not as favorable as those of new-car loans, and they tend to be about one percent higher.

There's another catch: If you're upside-down on your loan, which means you owe more on the car than it is currently worth, lenders might not be willing to refinance you. That's because to refinance, the lender will use the car as collateral on the new loan.

If this is the case, and you're suffering from a shrinking budget, the best thing to do is to discuss the situation with your lender and try to have your existing loan extended. Even if your lender raises the interest rate, your monthly payments will still be lower than now.

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