![]() The process of refinancing your auto loan is similar to applying for your initial vehicle loan. If you fall into this category you might get offered lower rates. ![]() Lenders see positive equity, when your vehicle is worth more than you owe, as a plus. This is unfortunately not the case right now as the Federal Reserve has increased rates at 11 meetings in 18 months, meaning a higher cost for lenders to borrow. When the federal funds rate is low, auto loan rates will also be more competitive. Ideally, you should lower your payment by sticking with a term similar to the time you have left at a lower interest rate. However, it will increase the amount of interest you pay. Refinancing for a longer loan term can reduce your monthly payment. If your score has improved since your original auto loan, you may save money by refinancing. A difference of just 30 points on your credit score can make a significant impact on your rate. If your original loan was financed by your car dealer’s preferred lenders, there is a good chance you didn’t score the best rate possible. Dealers often add a few points as a commission. Wondering when you should refinance your current auto loan? If you're in one of these situations, the answer might be now. To avoid this, stay away from long repayment terms - which can feel enticing when refinancing for a smaller monthly payment. If you choose to refinance at a similar rate but opt for a longer term, you are more likely to become upside-down. The choice to refinance does not come without risk, however.
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