Should I Refinance My Auto Loan?

If you purchased a car a few years ago at a fairly high interest rate, you may benefit from refinancing. Interest rates have plummeted in the last few years, and even with bad credit you may be able to lower the interest on your auto loan.

So how does it work? When you refinance your auto loan, you are actually getting a whole new loan. The new loan will be used to pay off your old auto loan.

After your old loan is paid off, the new lender will bill you at a lower interest rate. Typically, your loan payment will be lower as a result of reduced interest. You'll also be able to pay off your auto loan faster.

Even if your loan interest rate is only decreased by 2%, you'll save hundreds of dollars on your car loan in the long run.

If you're ready to refinance your car loan, here are a few tips to help you make the most of your new loan.

• Shop around for the best deal. Don't take the first loan that you're offered. It's a good idea to try at least 3 lenders before making a decision. If one lender is willing to give you a better deal, use that as a bargaining tool with other finance companies.
• Calculate the total amount you'll save. A low interest rate doesn't always mean that you'll save money. Make sure you calculate the total amount you'll pay back. If you refinance for several years, you may pay more in interest even at a lower rate.
• Check for hidden costs. Make sure you read the fine print. Loan offers sometimes have hidden costs that will add to your payment. Take the time to look at all of the details of your loan to make sure you're getting the best deal. 

Refinancing can save you hundreds to thousands of dollars. Make sure you get the best deal for your situation.

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About the author:

Michael Torrance is a financial consultant with First American Debt Consolidation and Loans, a company specializing in debt consolidation loan alternatives through consumer credit counseling.