Refinancing your auto loan can be beneficial, especially if interest rates have gone down since you bought your car, or your credit score has gone up. Of course, many of the same concerns that apply to regular car loans apply to refinancing as well.
One of the most common questions we hear from Addition Financial members who are considering refinancing their car loan is this:
How can I tell if the auto loan refinance rates I’m seeing are good?
It’s an important thing to ask because there are many factors to consider. The more you educate yourself – and we take member education very seriously – the better able you will be to make an informed choice. Here are some things to keep in mind.
Know the Details of Your Current Loan
Before you shop for auto loan refinance rates, you should review your current loan agreement in detail. Here are some of the questions to ask as you review it:
- What is the remaining principal on your loan?
- What is your current interest rate?
- Are there any prepayment penalties?
- If so, how much are they?
- How much time is left on the term of your current loan?
You’ll need the information listed here to make accurate comparisons between your current loan and any potential refinancing.
Get Multiple Quotes
One of the best way to make sure you’re getting a good deal on your auto refinance loan is to get quotes from several lenders at the same time. While your rates will be influenced by your credit score, you may find a lot of variation from lender to lender.
If you apply to multiple lenders, make sure you complete your applications for all loans at the same time, within a 14-day period. That’s important because inquiries from multiple lenders at the same time will count as one inquiry on your credit report. If the inquiries are spread over a month or two, your credit score may take a hit as a result.
Remember that you’ll need the details of your current loan, proof of employment and salary and all of the other standard things you need when applying for a regular auto loan. Having them handy will speed up the process.
Your Current vs. Proposed Monthly Payments
The most obvious comparison to make is to compare your current interest rate to the proposed rate offered by your auto loan lender. However, keep in mind that a direct rate comparison may not tell you which loan is better. You'll need to consider both the rate and the term to really calculate the difference.
Of course, if there’s a big difference in interest rates, it might mean that you’re getting a great deal. If you had less-than-perfect credit when you got your current loan, and you’ve made every payment on time since then, you may qualify for a better rate than you have now.
However, keep in mind that a lower payment for a longer term could mean that you pay more in the long run. Monthly payments are not the only thing to consider as you shop.
The Terms of Your Loan
The terms of your loan – how long you’ll have to repay the principal plus interest – can have a big impact on how much you end up paying over the life of the loan.
Here’s a very simple example: If a lender offers you a loan that results in a payment that’s $100 lower than what you’re paying now, that might seem like a great deal. But if the loan term is a year longer than your current term, you would end up paying more because you’d have 12 additional payments to make. Crunching the numbers and comparing everything will ensure you don’t end up paying more than you need to.
Of course, if the most important thing to you is having a lower monthly payment, that convenience may outweigh the higher overall cost.
Hidden Fees
One of the most problematic things a lender can do is to quote a low interest rate but pack the loan agreement with other fees that result in a much higher overall cost than might be apparent at first glance. For that reason, it’s essential to dig into the details of your loan and calculate the total you’ll be required to pay.
Some of the things you should look for include:
- Loan processing fees
- Closing fees
- Any other fee, charge or penalty
Doing a total cost comparison will ensure that you don’t get any surprises once you're ready to close the loan. Remember to include your monthly payment for the full term of your loan and any fees in your calculation.
Auto loan refinance rates can be confusing, but this guide can help you compare rates and be confident that the rate you agree to is one that’s beneficial to you in the long run.
To learn about Addition Financial’s competitive auto loan refinance rates, please click here now.
Posted on Sep 6, 2018
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