When to Refinance Your Car
submitted: Apr 7th 2008 |
by: JasonLancaster |
Total views: 7 |
Word Count: 571 |
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When it comes to refinancing your car, it's important to realize that there are really only three good reasons to do so:
1) A better interest rate is a very good reason to refinance your auto loan. You should refinance if your new interest rate will be at least 1% less and especially if you will be getting an interest rate that is 3-4% less than your current interest rate. If refinancing will only get you a new interest rate that is less than 1% better, you shouldn't waste your time. It probably seems like going from 6.25% to 5.99% is a big difference, but it is less than 1%. Since the difference is smaller than 1%, the benefit you will get from refinancing is so small that you shouldn't even waste your time.
2) The second reason you should refinance your car is if you can't afford to make the payments. If you are a couple months away from repossession or are at risk of defaulting on your auto loan, you should refinance your car loan right away.
3) The third reason you should refinance your car is to prevent defaulting on your home loan. If the payments on your auto loan are so high that you cannot afford to make mortgage payments, you must consider refinancing your car loan. If refinancing will lower your car payments, you will have more money to put towards your mortgage payments.
However, if you're thinking about getting equity out of your car so you can get money to pay other bills, you should know that this is NOT a good reason to refinance. Cars do not have equity since they are depreciating assets, and each day they are worth less than the day before.
If you owe less on your car than it is worth, you shouldn't borrow against this equity since it won't last very long. "Car equity loans" are offered by some banks but are never a good idea. Think about it this way. Would it be worth it to get a $100 today if that means you would have to make two years of extra payments on your car?
If you do choose to refinance for extra cash now, you will regret doing so in two or three years when you are making those extra couple years of payments. The only reason you should refinance is if you are at risk of defaulting on a major asset.
If you do need to refinance, keep the following in mind:
Walk away if a bank is going to charge you large fees such as "loan origination fees" or "refinancing fees." Only pay small fees like $20 for a new title or lien. The bank should not charge you for your business.
Never add more time to your car loan unless you are desperate to have your payments lowered. You shouldn't refinance using another five-year loan if you originally financed your car using a five-year loan two or three years ago. In a case like this, the only thing refinancing has done is increased the amount of time you will have to pay on your car. If possible, refinance using a loan that will end when your original loan would have ended.
Check with your credit union. Credit unions have great rates, they want to help you, and they're willing to work with you more than a regular bank will, especially if you're in a situation where you're at risk of defaulting.
About the Author
Author Jason Lancaster, an auto business veteran, developed AccurateAutoAdvice.com. You'll find accurate advice on how to refinance your car and refinancing an auto loan.
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