The Ins and Outs of How to Refinance Your Auto Loan

A Credit Article Contributed by Mark Mcclelland

Why Would I Want to Refinance My Auto Loan to Begin with - Isn't It a Pain?

Well, actually, you should really look at how to refinance of your auto loan unless you think that saving money is a pain. Not only are refinance loans easy to find, since most all banks and credit unions that make auto loans will also refinance those auto loans, it's likely that the interest rates are likely to continue to rise, albeit slowly, for the next couple of years.

That's especially important when it comes to credit unions since they typically have interest lower rates that can be several points lower than those of banks, allowing you to keep even more of your hard earned money in your pocket.

And the best place to start looking if you're interested in your auto loan refinance options is to go on-line. You'd be surprised at how easy it is to find reputable sites that actually offer a wide variety of attractive deals. Probably the largest of these are LendingTree.com and PeopleFirst.com; and unlike in the past these sites will consider your application to refinance your auto loan even if you a less than sterling credit history, so long as it's been improving (they want to make sure that you're making an effort to get your financial act together).

If You Decide to Refinance Your Auto Loan, Here's What You Do

Look carefully at the terms and fine print of your current finance agreement. You'll be looking for a variety of things, not the least of which is a prepayment penalty clause. They aren't very common, but they still creep in to financing contracts every now and then.

Then you go online and look for deals from reputable lenders, possibly including the two mentioned above, tat fit your specific financial needs and circumstance. But be realistic also; while we would all like 0% until the loan is paid off, it's really unlikely that you'll find an offer like that. You can use an auto loan calculator, like that on cars.com, to see how these deals you've targeted compare (you did identify several didn't you - it pays to shop around rather than stopping at the first apparently good deal you find)

Once you've settled on a specific offer, go that that sites webpage and fill out the application on-line. It's often the case that you can get a response back within the hour if you complete the application during their regular business hours.

Then what happens? Well, generally, you pay your old lender (not the dealership) the balance of your existing loan. If you bought a GM car, for example, and financed through the dealership, you'd pay GMAC, not the dealership.

In terms of fess, it's usually the case that all you'll owe is the state charges for changing the name of the lender on your car's title.

What You Should Be Careful of When You Refinance My Auto Loan?

It can't be said enough: before agreeing to anything, read the fine print - even if you hate doing it, or have never done it before. It could be an eye opener. If you aren't fairly clean on what it says you may want to consult with your favorite lawyer. The goal is to understand upfront, before you sign anything, what the contract obligates you to do.

You might want to consider passing up on the option to refinance your auto loan if there's a prepayment penalty associated with your existing loan, or for that matter, any fees or charges that might wipe out any potential savings to you, or the best rates you can find for your situation are still astronomical - say above 10% - and you'd be extending the loan out past the car's warranty period, or even if saving a couple of points on your interest rate simply wouldn't be that big a deal in terms of your overall financial situation.

You noticed, no doubt, that these guidelines all deal with interest rates and their impact on your financial situation in some way. So, do the math, paying special attention to the refinance payoff period. Even at a lower rate, a longer term might not have that much of an impact on your overall situation to make the effort worthwhile.

This is more likely to happen (longer term, not significantly lower rate) if you've had credit problems in the recent past.

So, while refinancing you auto loan makes sense for most people, you shouldn't be rushing into another obligation without evaluating all aspects. If the deal doesn't look god for you don't do it. If it does, however, as it probably will for most people, don't let the small amount of effort required keep you from saving big bucks.