Refinancing Your Car Can Make Driving More Pleasurable


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Sometimes, even individuals with good credit records can be caught in the vicious circle of high interest rates on auto loans. This is because in the excitement of purchasing a new car, they ignore important aspects of the financing deal. Later, when they discover the agreed sky-high financing rate, they are completely shocked.

Huge Savings

Refinancing is also suitable for those suffering from a past bad credit experience even if they have paid the installments of one or two years of the original loan. A reduction of only one or two percent in the interest rate can save a lot of money in interest and reduce the amount of your monthly payments.

For instance, assume that a borrower is paying 9 percent interest on a $10,000 loan over a period of 60 months. Then, the monthly installment will amount to approximately $242 and interest will be $4,500. Reduce this interest rate to 7 percent and you will find that the monthly installment will automatically decrease to $225 and the interest to $3500, thereby saving you $1000.

Take Advantage of Current Rates

Since the interest rates are relatively lower at this time, you should start thinking in terms of a new and improved auto loan . The first step in this direction would be to consider your present loan seriously.

You should also find out if the rate on your present loan is calculated with simple interest. With this type of loan, you're made to pay the interest everyday on the basis of the balance you owe. Even in this situation, refinancing produces the biggest savings when a simple interest loan without any prepayment penalties is refinanced into a simple interest loan having a reduced rate.

Beware of Fees

Try to find out the fees when you are searching for an auto loan. States may charge anything between $4 and $40 for replacing one lender’s name on a car's title by another. While a few lenders won’t request you to pay it, others may pass the cost on to you. Some lenders also charge processing fees. But, before considering the refinancing offer, you must ascertain that your original loan is a simple interest loan.

The Rule of 78s Trick

A few of the sub-prime lenders provide pre-computed loans. Once you take this kind of loan, it is mandatory to repay the principal along with the full interest amount counted for the entire period of the loan. In case you've accepted the pre-computed loan, then your lender may use the old and expensive “Rule of 78s" formula to calculate a “rebate" of finance charges if you want to repay it early or refinance it. In fact, this rebate is nothing but a sneaky prepayment penalty.

With the help of “Rule of 78s" formula, a lender typically gets three-quarters of a loan's interest in the first half of a loan's payments. So, the earlier you try to repay one of these loans, the more you'll have to repay.

Sarah Dinkins is an Expert Loan Consultant in the financial industry that helps people to repair their credit and get approved for home loans, unsecured personal loans, student loans, car loans and other types of loans and financial products. At her Website she is continually adding new finance articles useful for those in need of professional advice.


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