Refinancing Can Be A Great Way To Save Money On Your Car Loan
Whether it’s new or used, mass-market or premium, your vehicle represents a major investment. In fact, most car buyers finance at least a portion of their purchase—which is why it’s so important to save money on a car loan when possible.
The more options you have, the better. The last thing you want to do is overspend. Securing a lower interest rate can save you hundreds or even thousands of dollars over the life of the loan. You may work with your dealer or arrange your own financing through an auto finance company, your bank or your credit union. It is important to shop around, and if you are already repaying a car loan, refinancing could improve your fortunes.
Let’s take a closer look at four strategies you can utilize to save money on a car loan.
1. KNOW YOUR CREDIT SCORE.
Before you even begin to shop for your next vehicle or consider refinancing, you have to access your credit report and how your credit score affects you. Make sure there aren’t any errors or inconsistencies that could be adversely affecting your credit score.
2. BE SURE TO SHOP AROUND.
Finding the right vehicle typically requires hours of research and several test drives. Why spend any less time shopping for the right car loan? Once you know what you plan to spend—but before you visit the dealership—explore options with your bank or credit union and reach out to auto finance companies. Your objective is to find the most favorable terms, including the lowest interest rate.
3. DON’T DISCOUNT THE DEALER.
Shopping around will give you options beyond dealer-arranged financing, but don’t assume your dealer can’t beat your best outside offer. Dealership finance departments maintain relationships with multiple finance sources, and they are sometimes able to leverage their volume to secure better interest rates for their customers.
Honesty is the best policy. Share the results of your research with your dealer and see what they can do. At worst, they’ll tell you they can’t match what you already have. At best, they will meet or exceed your expectations for an affordable car loan.
4. REFINANCE, REFINANCE, REFINANCE.
If you are already paying off a car loan and you wish your payments or interest rates could be lowered, refinancing could be the answer — particularly if your credit profile has improved since you secured your existing loan. Whether it’s been one year or several, refinancing is a great option for many consumers looking to decrease their monthly auto payments.
Refinancing is a fairly straightforward process and can often help you save money on a car loan. You can attempt to work with your current finance source or reach out to companies that specialize in auto loan refinancing. Either way, the process is very similar to obtaining any other car loan.
First, you’ll want to pull your credit report again. Clear up any inaccuracies and allow your score to reset before you begin the refinancing process. Generally speaking, the better your credit score, the better the interest rate you will be able to secure.
Second, just like with the original loan, shop around. You will want to submit all your credit applications within a week or two, since these will count as hard inquiries on your credit report, which can temporarily lower your score. But if you make them all within a short timeframe, the credit bureaus will only count them once, which means your score will take less of a hit.
Third, keep an eye on overall interest rates. If rates are going up, you might have a hard time getting a better deal, even with a better credit score. But if interest rates are down from when you first purchased, you could score a much better deal, even if your score hasn’t changed. It’s another factor you’ll want to consider when choosing the right time to refinance.
Refinancing also may extend the life of the loan, which could reduce your monthly payment. Reducing the repayment term could increase your monthly payments even if the interest rate is reduced.
Once you have found a deal that makes sense for you, then it is just a matter of doing the paperwork. Your new creditor will pay off your old loan. They will then send you the paperwork to sign and return for the new loan with the new terms. (Refinancing documents can typically be signed at home and mailed to your finance company.)
Save Money on a Car Loan Now
If you’re ready to start saving, then you’re ready to look into car loan refinancing. Follow those four simple steps to see what refinancing options are available to you.