3 Reasons to Refinance Your Auto Loan and How It Can Help You

No matter how you look at it, auto loan payments are expensive, and many individuals struggle on a monthly basis to pay their staggering bills. In fact, the Washington Post^[1] states that an impressive 7 million Americans are more than three months behind on their auto loan payment.

Managing your monthly auto loan payments doesn’t have to be so difficult. On the contrary, there are solutions available to you that can ease your situation and save you tons of money. A primary example would be refinancing your auto loan altogether.

“Refinance your auto loan, it essentially means starting the loan process over again,” said Karina Wallot, credit agent at Ford. “This means you could potentially secure a lower interest rate, smaller monthly payments, or even adjust the length of the loan. It’s worth considering if you want to potentially save money on your car payments.”

Does refinancing your auto loan interest you? Take a look at the following top 3 reasons why you should go forward:

1. Decreasing High Interest Rate

Auto loan interest rates are based on a few different factors. However, your credit score and current interest rates are the leading influencers.

A bad credit score or a poor credit history is likely a cause for high interest rates when it comes to your auto loan. When considered over years of repayment, interest rates can add up to thousands of extra dollars spent on your loan. That being said, interest rates are changing and deals that sounded great a few years back may be outdated, so it’s essential to stay up-to-date on different prices.

If you purchased a vehicle at a 6% or higher interest rate a few years back, LendingTree^[2] says it’s time to look at your refinancing options. Interest rates are constantly changing, but in 2019, rates dropped as low as 1.85 percent^[3] for an APR of 36 months. Can you imagine slashing your interest rates by 5% or more?

2. Decrease Loan Term Length

Loan term length has a significant influence on the final amount you spend on repaying your loan, as well as how much you pay on a month-to-month basis. Three, five and seven are the most commonly seen loan term lengths. Furthermore, longer or shorter loan terms can make a difference in your monthly bill.

In truth, the longer your loan term is, the more money you’re spending on your loan in total. You will also pay more interest each month, significantly increasing the initial purchase price. Your monthly fee may be smaller because the total loan amount is spread over a more extended time.

“Shorter loan term can ultimately save you money on interest charges,” said Wallot. ‘It’s important to keep in mind that shorter loan terms often come with larger monthly payments. If you’re struggling to make your current payments, refinancing to a longer loan term could help lower your monthly payments. Just be aware that you may end up paying more in interest over the long run.”

All in all, if you don’t mind spending a little more in the long run, refinancing is well worth it. Credit Karma^[4] explains that changing your loan term is smart, especially with the intent of decreasing monthly amounts.

3. Spend Less Money

We ALL want to spend less money. You may not have considered it before, but refinancing your auto loan can do just that: save you extra cash. High interest rates and long loan terms can only equal one thing: wasting thousands of hard-earned dollars! Different, more flexible loan terms can allow you to save plenty monthly.

Just a few percentage points less can really make a huge difference. LendingTree^[5] provides the following example: A $25 000 loan over five years with a 7.75% interest decreased to 4.75% over four years could mean an extra $30 in your pocket every month. Let’s face it, that’s a whopping $1500 savings over four years!

Changing the loan term will equally make the same financial difference. If you shorten your loan term and accept to pay a little more per month, you’ll save incredibly in interest rates, even if you only decrease by a year.

Adjusting the loan term can have a significant impact on your overall interest charges,” Wallot said. “Even if you only shorten your loan term by a year, you could end up saving a lot in interest by agreeing to pay a little more each month.”

Top 3 Refinancing Options Available to You

Refinancing your auto loan doesn’t have to be complicated and can be completed whenever you’re ready to do so. If you’re prepared to sign on to more manageable monthly auto loan payments, then you can start the application process directly online. Make sure you do your research and choose a refinancing company with terms that work for you and your needs.

First things first, be aware of your credit score and your total loan amount. It would be best to look for options that fit your financial capacities, so take the time to look at the different possible rates offered.

Take a look at the top 3 refinancing companies you can reach out to today:

OpenRoad Lending

Allotted Loan Range: $10,000 to $100,000

Interest Rate Range: Anywhere between 1.9% and 24.9%^[6]

Eligible Credit Score: Ranging from 550 to 850

LendingClub

Allotted Loan Range: $5,000 to $55,000

Interest Rate Range: Anywhere between 3.99% and 24.99%^[7]

Eligible Credit Score: 510 to 850

Autopay

Allotted Loan Range: $2,500 to $100,000

Interest Rate Range: From 1.99% and 17.99%^[8]

Eligible Credit Score: 600 to 850

A key factor to keep in mind when looking at refinancing your auto loan is staying informed, knowing current interest rates and how low other companies may be offering. Make sure you research several different refinancing companies in order to make sure you’re making the right decision.

In conclusion, refinancing your auto loan is far from complicated. Doing so can genuinely save you money, make your financial situation more affordable, and make your loan more affordable. With the proper knowledge and the right company, you’re guaranteed to have more money available in your monthly budget.

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