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  • While many consumers get deluged with information almost daily regarding refinancing options for their home mortgage, another refinancing option goes largely unnoticed. Automobile refinancing is an easy and excellent method of lowering monthly payments and saving money on the life of your new auto loan, yet many people don't know how or haven't considered this cost-saving alternative.

    What is Auto Refinancing?

    You happily drove away in your new vehicle but, even as you pulled out of the lot, you wondered if maybe you had made a rotten deal. Many consumers feel the same way. Those saddled with a poor credit rating may have had to settle for financing percentages in the high teens or even the 20s, making monthly payments a burden on the family budget. Automobile refinancing is an excellent way to ease some of that pain. According to Carbuyingtips.com, "when refinancing car loans, you pay off your current car loan with a refinancing car loan from a different lender that has a lower APR." This method can reduce monthly payments and also rebuild credit since your initial loan is paid in full, even though the amount has been transferred to a different lender.

    Who Should Refinance?

    An online article published in Edmunds.com identified the types of consumers who should consider refinancing. We all know these people, in fact, some of us might be them. Some consumers are interested in refinancing when interest rates drop, while others, according to Edmunds.com, are remorseful over the agreement they just struck with the dealer and want a better deal. Still others might have had a life-changing event since they purchased their vehicle, such as losing their job, and now the payment is too high to fit their family's budget. Bankrate.com also identifies consumers who might find better interest rates with an improved credit score and those who have leased their vehicle and are looking to make a purchase.

    How to Refinance

    If you want to refinance your automobile loan, act quickly. The value of a new vehicle depreciates rapidly, so Edmunds.com suggests waiting no more than 6 months. Sooner is okay, too. In most cases, the lender in your original agreement will not agree to refinance, so you must look elsewhere. Online is a good place to start your search and, according to Edmunds.com, there are "many players in the refinance game, there are Up2Drive.com, Capital One Auto Finance and Bankrate.com. Bankrate.com refinances cars on a 'referral' basis--taking loan applications and matching them with banks." You can also look in your own neighborhood. Local banks are often a good resource. According to Myautoloan.com, auto refinance loans are considered used car loans, so the annual percentages tend to be higher. However, if you have been stuck with a high interest rate on your first loan, refinancing with an interest rate even one or two points lower could make a difference that could save you some real cash. Myautoloan.com cautions, however, not to refinance if the monthly payment difference is minimal since you will be adding,on years to your car loan. Unlike a long-term home loan, most car loans run 3 to 5 years. Lumping in an extra year or two to the life of the loan might lower the monthly payment, but ask yourself if you still want to be driving your vehicle in the 7 or so years you will paying off the loan. If the terms and rate are favorable, then refinancing your vehicle is a great way to save money.

    Source:

    Edmunds: Refinancing Your Car Loan

    Car Buying Tips: Auto Refinance Tips and Scams

    More Information:

    My Auto Loan: Auto Refinance

    Bank Rate: 5 Top Situations for an Auto Refinance

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