Avoid Car Loan Refinancing- Request Your Free Auto Loan Quotes Today!

You might have seen ads on TV urging you to consider car loan refinancing to save money. While the promise of savings can be tempting, it’s important to have the facts before making any major financial decisions. Why not think about purchasing a new car through an auto loan, this may be the best option if you are looking for low available interest rates. Request your free no obligation to buy new car auto loan quote today!

Where Should You Shop for Auto Loan Rates?

The general wisdom is that refinancing is a positive tool that smart borrowers can use to save money on major purchases. However, car loan refinancing is often structured in a way that benefits the lender, not the borrower. Shortsighted or uninformed buyers are at risk of being taken advantage of.

Some buyers use car loan refinancing to reduce the amount of their monthly payments. The lender does this by extending the loan term. As a result, the overall cost of the loan will be higher due to having to pay interest for a longer period.

You also need to remember that interest is front-loaded; you pay the interest first. At the beginning of your loan, the payments you make will go mainly towards interest. Only later in the loan do you make significant reduction to the principal. So if you move the balance to another lender, you’ll end up having to pay the interest up front all over again.

You also might face prepayment penalties on your original loan, driving up the cost of refinancing even more. Make sure that you understand your loan contract before you consider car loan refinancing.

Let’s say you have 33 months left on your $15,000 loan, with a relatively high interest rate of 8% and your monthly payment is $506.91. If you refinance with a new, 36-month loan at 6.29%, your monthly payment drops by about $50 and you save about $250 over the life of the loan. Sound good? Well, when you factor in the fees involved, you could actually end up losing money. And if you’re still upside-down on the car, as many people are in the beginning, you’ll have to pay the difference to the new lender. Even if you’ve paid off a good portion of the loan, older cars don’t qualify for as many options because the resale values are lower.

Rather than taking a hit from car loan refinancing, consider using CarLoanMatcher.com’s free service to see the new car loan options available to you.

How To Get The Best Interest Rates

Lenders are currently offering some great incentives to get car shoppers back into the dealership in the current economic climate. While lending policies are more conservative than they once were, you can still get great available rates if you do your homework. There are several factors that contribute to your interest rate, including:

• Your lender. Unless you have someone who will lend you the money privately, you’ll be working with a bank, credit union or dealership. Each has its pros and cons.
• The car you’re buying. Is the car new or used (or very used)? The value of the car affects the term, since it is collateral for the loan. New cars usually get the best rates.
• Loan-term length. Car loans used to be capped at about three years, but now five year or longer loans have become commonplace. Keep in mind, though, that longer loan terms have higher interest rates.
• Your credit rating. Borrowers who have the best credit rating will enjoy the best interest rates. While dealers may advertise low- and zero- interest loan rates, few buyers actually qualify for them.

Car Loan Terms

It’s helpful to speak the loan officer’s language so you know if you’re getting a good deal. Below are some terms you may run across while shopping for financing:

Auto Equity Loan
This type of loan is also referred to as a title loan. It uses the equity that you have in your vehicle. Once the loan is paid off, the lender returns your car title.

Bad Credit
This is a term for below average credit. It may be a result of a history of late payments, repossession, foreclosure or bankruptcy. This does not necessarily mean you can’t be approved for a car loan.

Cash Back Refi
This is a type of car loan refinancing which uses the equity in your car to give you a cash loan.

Finance Charge
This is the total cost of interest charges over the life of the loan.

Interest Rate
This is the percentage of interest you pay for each year of the loan term.

Term
This is the length of the loan, during which you owe money to the lender.

As with any major financial decision, the better informed you are, the more likely it is that you’ll get a good deal. For free auto loan quotes from lenders competing for your business, request your no obligation to buy auto loan quote today!