Time to Refinance Your Auto Loan?

There has been a lot of play given to the idea of refinancing your home mortgage loan. With interest rates so low, it is no surprise that many people are interested in refinancing and saving tens of thousands of dollars over the life of their home mortgage loans. However, many people are overlooking the fact that auto loan interest rates have also come down, and you might be able to save thousands of dollars on your car loan.

When my husband and I borrowed for our first car as a married couple, on our own credit and income, things were different. We had both benefited from having our parents co-sign on our loans. The fact that we had one income — my just-above-minimum-wage job — didn’t do much to counteract the fact that we both had credit scores of around 720. We had some credit card debt, and that was a factor as well. We ended up with an interest rate of around 11%. Yikes. But a year later, with an increase in income and a reduction in debt, we were able to refinance to a shorter term at what, at the time, was a great rate: 6.9%. We saved thousands, and had our loan paid off faster.

Even lower auto loan interest rates

Today, a 6.9% rate is merely okay. You can get auto loan refinancing for between 4.5% and 6.0% if you have good credit and other qualifications. You could save thousands if you refinance your auto loan to something with a lower interest rate. If your credit score has been heading higher, and you have a reasonably low debt to income ratio, you could probably save some money if you refinance a car that you bought prior to 2008.

Here are some things to keep in mind if you refinance your auto loan:

■Try to avoid extending the loan term. If you are two years into a five year car loan, just refinance at a lower interest rate for three years.
■Try a credit union or your local bank. These institutions are often willing to work with you, and more than happy to refinance a car loan for someone with a low credit risk.
■Shop around. Look for a lender with low origination and closing costs, and make sure you check into the other fees. You want to get the best deal.
■Make sure you really will save money. Sometimes the fees can eat away at your savings. Check to make sure you really will save money. A rule of thumb to refinance only if there is at least a 1% difference in the rates.
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