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What You Should Know Before You Refinance a Car Loan

Car buyers are signing for auto loans everyday and being charged more for interest than they would if they did a little homework. Some people pay attention to what they sign at the dealership, some people are overwhelmed by the car buying process and don’t realize what they signed and others feel that they are struck with the rate and term that the dealership gave them when they bought their car. If you fall into any of those categories you may want to read this post before you refinance a car loan.

Considerations of Refinancing a Car Loan

Before you run out and try to refinance your auto loan you need to do some homework to determine if a new auto loan is right for you. Your first consideration is the interest rate of your current auto loan versus the interest rate that you could get from another lender. You could talk to your local bank and get a rate quote or you could get a few quotes online at Lending Tree, which I have found to be the easiest and quickest way to get several competitive quotes. You can click here and get several quotes for free (link will open in a new window).

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Refinancing a Car Loan Details

Now if you got a better interest rate quote than what you are currently paying the next step would be to check the value of your vehicle. Regardless of whether you bought a new or used vehicle from the car dealer the value of your vehicle will be less than you paid. You should go to Edmunds.com and check the value of your automobile and determine the value, not the retail amount, but the trade-in or wholesale amount.

Refinance a Car Loan the Numbers

If you bought your car without a down payment there is a very good chance that you will be upside down (meaning you owe more than your car is worth). If that is the case you will need to pay down the balance before another lender will refinance the car loan. Generally lenders that refinance a car loan will only finance 80% of the value. Now take 80% of your vehicles value and compare that to what you presently owe on your car.

How did your numbers come out? Does the 80% cover the payoff or is the payoff more than 80%. In many cases refinancing a car loan would require you to add money when you refinance. This is something you need to know before you get too far. You might be able to lower your payments, but if you have to add a few thousand dollars to lower them it might not make sense for you and your budget.

Now wait, I am not done yet. You also need to take into consideration any fees that may be involved in refinancing a car loan. There will be a title transfer fee, there could be an early payment penalty depending on the lender that holds your current auto loan and the new lender may charge a fee for a new auto loan or a documentation fee.

You can see that it as not as simple as it sounds to refinance a car loan as it sounds. However, if all the numbers line up you may be able to reduce your payments, term and overall expense versus you current car loan. The lesson to be learned is to read everything and know what you are signing when you finance a car and you won’t have to worry about refinancing.

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