Should I Refinance My Car?
by: JasonLancaster |
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If you are considering refinancing your car, you should only do so for the following three reasons:
1) The first reason you should refinance your car is if you can get an interest rate that is at least 1% better than what you currently have. Although 5.99% is better than 6.25%, they are so close (less than 1%) that the difference is not enough for you to waste your time. However, if you are able to get an interest rate that is at least 1% better, you should seriously consider refinancing. If refinancing will get you an interest rate that it 3-4% better, you should definitely refinance your car loan.
2) Not being able to make payments on your car loan is another reason you should refinance. If you can't afford the payments and may default on your loan, definitely refinance. If there is a possibility that your car will be repossessed in the next couple months, refinance as soon as you can if this will prevent repossession.
3) Not being able to afford payments on your home loan is a definite reason why you should refinance your auto loan. This will only work if refinancing your auto loan will lower your car payments. Then you can use the money you save on your car loan to pay your mortgage.
Do NOT refinance your car in order to get money to pay other bills. You will not be able to get any money from the equity in your car because cars do not have any equity. A car is a depreciating asset, which means that it is worth less tomorrow than it is today.
Although some banks may offer "car equity loans," don't fall for it. Your car may be worth more than what you owe, but this never lasts very long. It would be a mistake to borrow against this equity. You will add more payments to your current auto loan. Consider the future. Making an additional two years worth of payments on your car could not be worth the $100 you would get today from this kind of loan.
Only refinance if you are at risk of defaulting on a major asset. You will regret it in a couple years if you refinance for some extra cash when you could have been done making payments on your car if you hadn't.
If you do need to refinance, keep the following in mind:
Walk away if a bank is going to charge you large fees such as "loan origination fees" or "refinancing fees." Only pay small fees like $20 for a new title or lien. The bank should not charge you for your business.
If you are going to refinance, do not add any more time to your car loan unless you are really desperate to lower your payments. For example, let's say that you took out a five year loan when you bought your car three years ago, so you only have two years left of payments. When you refinance, you shouldn't take out another five-year loan because now you will be making payments for another five years when you would have been done in two. All refinancing has accomplished is extending how much time you will be making payments on your car. When you refinance, get a loan that will end at the same time your original loan would have ended.
Always check with your credit union. Not only do credit unions want to help you, they usually have excellent rates. They will work with you more than a regular bank will, especially if you are in a situation where you may default on your loan.
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About the Author
Author Jason Lancaster, an auto business veteran, developed AccurateAutoAdvice.com. You'll find accurate advice on refinancing an auto loan and how to refinance your car.
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