Can I reduce my current auto loan payments?
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UPDATED: Feb 20, 2012
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On an existing auto loan bill, the best way to reduce one’s monthly payments is to refinance. Refinancing a car loan is a process that involves negotiating with a lender, then taking out a new auto loan that covers the balance of an existing one, but at a lower interest rate. And as the auto loan in industry continues to tread far in front of the rest of the financing industry, obtaining one of these refinances is becoming easier and easier.
Done are the Days of High Interest Rates
Interest rates are being slashed, left and right, in all of the financing fields. Mortgages, for example, have broken record lows nearly ten times in the last year alone. Car loans aren’t far behind, as their interest rates have been dipping to very low levels in an attempt to stimulate purchases. If a current vehicle owner is financing their car at a high rate, they should consider an auto refinance loan.
Jessica Hearns, a 23 year old car buyer purchased her vehicle in 2009 when she had very little credit history. As a result, she wound up financing her new automobile at an alarming 19 percent interest rate over five years, reported the Detroit Free Press.
Her mother, however, thought such a rate was outrageous.
“She said my interest rate was entirely too high,” Hearns explained.
So Hearns approached her lender and sought a refinance. She landed an auto loan refinance at 3.5 percent over three years, effectively dropping her monthly bill from $225 to $165—a 26 percent decline.
“You save a lot of money, and it’s a great deal,” said Hearns about her refinancing experience.
How to Refinance
In order to participate in this money-saving technique, there are a few prerequisites:
- One must usually have an outstanding loan balance of $7,500 to $30,000
- The vehicle should be less than five years old
- Borrowers need to have a decent credit score
All of these requisites have been established in order to best protect both the lender and borrower.
Lenders usually require an outstanding car loan balance of more than $7,500 since it would often not be worth the trouble and fees to refinance a loan.
A vehicle that is older than five years often loses its value to a point where a lender would be unwise to back it with a cheaper loan.
Finally, borrowers with low credit scores are usually more prone to default than those with better financial history.
Borrowers ought to make sure they meet all three of the requirements if they’d like to reduce their monthly payments with an auto refinance loan.