Three Signs You Should Refinance Your Auto Loan

By Mitch Strohm

Have you considered refinancing your auto loan? An auto loan refinance could save you hundreds - perhaps thousands - of dollars per year.

It may also lower your monthly payments, making it easier to foot the bill for your transportation.

"Refinancing an auto loan is a good idea in several instances," says Amy Larson, branch manager for Springleaf Financial in Addison, Illinois.

Of course, refinancing an auto loan may not be the best option for everyone.

Here are three signs you should consider refinancing your car loan:

Interest rates are lower

Interest rates can make a difference in both the size of your monthly payment and the total interest you pay over the life of the loan. If your loan's interest rate is higher than rates you could find today, consider a refinance. Lowering your payment by a percentage point or two can make a difference in the long run.

It's important to run the numbers and make sure a refinance will be worth it. There are plenty of free calculators online that can help you decide if refinancing makes sense for you.

You're having trouble paying

Are you struggling to pay your auto loan on a monthly basis due to a financial setback or other hardship? Refinancing may help.

"If the consumer feels the payment they are currently paying is putting them in a bind on a monthly basis, it's a good idea to try for a refinance to lower the payment," says Larson.

There are a couple of ways a refinance can decrease your monthly payment. You may be able to get a lower interest rate, or your lender might extend the term of your loan, notes Bankrate.com. In either case, your monthly payment may drop. However, extending the term of your loan may increase the total amount of money you would have to pay back.

Your credit has improved

Did you have bad credit or a limited credit history when you purchased your vehicle? If your credit is better than it was when you bought the car, you might qualify for a lower interest rate with your lender, according to Bankrate.com.

Of course, policies and procedures associated with reducing the interest rate vary from lender to lender, notes Larson.

There's no general rule for how much your lender will reduce the rate, nor any guarantee that your lender will reduce it at all. But that doesn't mean you shouldn't try. "It never hurts to ask," says Larson.

Sources

http://www.bankrate.com/finance/auto/learn-about-auto-refinance-loans.aspx
http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx
http://www.bankrate.com/finance/auto/5-best-conditions-to-refinance-your-car-1.aspx

Amy Larson of Springleaf Financial

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