Some Considerations in Refinancing Auto Loans

2007-03-08 10:33:40

( Financial )



Did you know that in most cases, refinancing auto loans can save you money? Refinancing auto loans provide you the option of extending the repayment period of your current car loan. Auto refinance loans can also be restructured to shorten your repayment period, and as a result improve your credit standing.

Refinancing auto loans can be done at any time; however, there is a minimum amount that you must still owe before you can be eligible, your current loan must be under your name, and the new loan amount cannot be higher than the present value of your car.

Once you have received an approval for refinancing, the new refinancing company will settle your current auto loan by paying off the existing balance. A new agreement is then drawn up to reflect the new payment scheme and new interest rate.

Like other types of loans, auto loan refinancing also has its drawbacks:

Lengthening the terms of your loan can affect your future vehicle purchases. It can also result in making monthly payments beyond the lifespan of your car.

Before opting for refinancing auto loans you should compare the effects of its interest rate with a longer repayment scheme.

People who have a bad credit history may be offered a longer repayment period, but end up with a higher interest rate and monthly amortization.

You should not opt for refinancing auto loans if the difference between the old and new interest rates, and monthly payment amounts only provide you with very small savings each month.

You must note that some auto loan agreements include a prepayment penalty that becomes payable when any form of prepayment is made, including the full settlement of an auto loan. Some prepayment penalties are so high, that it can equal the amount of savings that could have been brought about if you decide to refinance your auto loan.

The Internet is a good place to find companies who offer auto loan restructuring; however, you should read all the terms and conditions of the new agreement carefully before signing it, including any hidden charges that may be included.


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