Refinancing your car loan can save you money each month, even if you have a low credit rating or a short credit history. Refinancing is a particularly good idea if you are struggling to pay your monthly bills or if you expect to become unemployed in the near future. Here are two ways to save money on your monthly auto loan repayments.
Find a Lower Interest Rate Over the Same Loan Period
If interest rates have fallen and/or if your credit rating has improved since you took out your current car loan, it would almost certainly be a good idea to refinance, especially if your credit score has risen above 620. However, if you have been late in making one or more payments, it may be better to wait until you have a six-month record of paying each installment on time.
If you have a low credit score, you may still be able to obtain a lower interest rate than your current one, especially if all of your payments have been made on time.
If you shop around for the lowest interest rate possible, you won’t need to extend the life of your loan in order to save money each month. The lower interest rate will mean that each monthly repayment is lower than the amount you currently pay. Therefore, you will pay back the loan just as quickly and spend less money overall.
Extend the Life of the Loan With or Without a Lower Interest Rate
Another way of reducing your monthly auto loan repayment is by extending the period of your loan with or without a lower interest rate. This option is a good one if you absolutely have to reduce your car loan repayments during the next few months. If your finances then improve, you can re-evaluate the situation.
The potential disadvantage of this option is that you may end up paying more interest over the entire term of the loan, even if you obtain a lower interest rate when refinancing. At the moment, interest rates on car loans are quite low but they may increase before the end of your loan.
Whichever option you choose, be sure to obtain copies of your credit reports before applying for auto loan refinancing. If there are any mistakes on these reports, ask for them to be corrected before applying for your new loan. This should ensure that you obtain the best interest rate possible.
Save money by refinancing your car loan, whatever your situation.