RULE No. 1 – Never Lose Money
RULE No. 2 – Never Forget RULE No. 1
– Warren Buffet
When one of the world’s richest man talks about money, everyone must pay attention. His advice is useful for everyone including people with car loans. If you have a car loan and are losing money because of high-interest rates, you must take necessary steps for saving your hard-earned money.
You can save money by applying for refinancing because it will help you in obtaining lower interest rates and affordable monthly payments. When you begin the process of refinancing, you apply for a second loan to pay off your first loan.
When should you apply for Refinancing?
Even though it is a good move for saving your money, you should not opt for it without thorough understanding of your situation. If any of the following situations applies to you, only then you must initiate the refinancing process:
Is there a Significant Drop in Interest Rates?
Check out the current interest rates for obtaining a used car loan in your area. If the interest rates have reduced phenomenally since you purchased your car, you could save money by refinancing your car.
Is there an Improvement in your Credit Score?
Your credit score is an important factor for lenders to determine your interest rates. If you had a bad credit history or zero credit score at the time of buying your car, you may have received high-interest rates.
If you want to start the refinancing process, check your credit score. If your credit score is healthier and has improved considerably, you can apply for it.
Is your Loan Term Lengthy?
Most people concentrate on lower monthly payments but forget to consider the car loan term. A lengthy loan term is bad news because it means you have to pay interest for a longer period of time. So, if your loan term is longer than five years, you must opt for refinancing and choose a shorter loan term. It will help you in reducing the total interest amount.
Is there a Pre-Payment Penalty?
Before opting for refinancing, you must consider the terms and conditions of your present car loan. There are many lenders that charge high pre-payment penalties for breaking the loan contract. You must opt for refinancing only if penalty fees don’t negate the savings that you will receive by refinancing your car loan.
Is your Car Lease expiring?
Under a car lease agreement, the financing company purchases the car and then leases it to you for regular rental payments. At the end of the lease period, you have the option of buying the car or returning it to the financing company. If your car lease is expiring and you have no money to buy the car, you can opt for refinancing. The refinancing option is also helpful for those people who want to get out of their ongoing lease agreement.
Where to look for Refinancing?
Once you are sure of refinancing, you have several options to start the process. You can apply for refinancing at your local bank or a credit union. You can even visit websites of several online auto financing companies and choose one that offers you the best interest rates.