Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 12, 2012

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A car refinance loan pays off an existing auto loan and results in a borrower making payments to a new lender with new interest rates.

Borrowers typically seek car refinance loans in order to get lower interest rates and reduced monthly payments. For this reason, borrowers who currently have auto loans with high monthly payments or high interest rates should consider filling out an application for a car refinance loan.

This is particularly true for borrowers who obtained high interest financing at an auto dealership.

While dealerships are very convenient for financing, they are not necessarily the best lenders. Dealerships can use high-pressure sales tactics or take advantage of tired customers that have spent an entire day car shopping for a car. As a result, dealerships can end up lending auto loans with high interest rates. Fortunately, car refinance loans can be used to offset a past mistake and give borrowers a fairer interest rate that can yield more affordable monthly payments

Not all dealerships are so unethical that they would pressure borrowers into accepting high interest auto loans though. The above is simply a generalization depicting what many borrowers have experienced when financing vehicles through dealerships. It is entirely possible to have a wonderful experience and receive fair financing at a dealership.

Skirting that same line, not all traditional lenders are the same either. Some are completely legitimate while others are looking to profit through any means they can.

When it comes time for a borrower to select a lender, borrowers should shop around and compare interest rates and penalties. Some lenders may offer excellent interest rates but at the expense of imposing high penalties if a borrower falls behind on payments or can only make partial payments.

Some of the fees borrowers should expect to pay include lien holder costs, state re-registration fees, and possible pre-payment costs. These amounts all vary depending on lenders and the state a borrower or applicant is in.