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Refinance Car Loan
Some people have a head for numbers. Others need help from outside their heads, like computers and calculators. Which kind of person you are, you cannot get around the fact that, as an adult in a modern economy, the numbers that represent your finances are important and you need to understand them. One of the first ways that many consumers learn about saving money on their debt payments is when they go to refinance an auto loan.
You don’t need a “head for numbers” if you have a strong and abiding interest in them, particularly the numbers that represent your finances. You can always get help, as you get in these online articles and others. Since an auto loan is either the first or second biggest loan obligation that most consumers take on, the vast majority of consumers have at least heard that they can refinance a car loan, even if they don’t know the details.
Details, details
The basic calculation is a simple one – subtraction! As interest rates fall, the “cost” of money goes down and your monthly car payment will, too. However, a mere 1% drop in the interest rate is not going to save you very much if you refinance a car loan, unless your loan is for a Bugatti Veyron (list price, $1.1 million). Of course, if you can afford a Bugatti, you probably employ someone to keep track of your finances, anyway.
For most people, the formula starts working to save real money when interest rates have fallen at least three or four points, and show signs of further erosion. If your credit rating is good to excellent, you can refinance a car loan at the best possible interest rate and potentially save hundreds, even thousands, of dollars over the life of the loan. Using a loan calculator this amount can be quickly quantified.
Marginal borrowers
The potential savings for people with less stellar credit ratings are less, but not non-existent. However, if you cannot qualify for the lowest available rate, you may have to wait for interest rates in general to fall some more to make the formula work. There are some additional things you can do, however, to make the decision to refinance your car loan have more impact on your personal bottom line.
If you have some savings, you could crunch the numbers to determine whether it is best to leave the money in an interest-bearing account or investment, or pay off (or pay down) your car loan. When you refinance a car loan, you can add a lump sum payment at the beginning and therefore finance a lower amount at a new, lower interest rate. If you are not confident in your ability to make these calculations, there is plenty of help available. Any number of lenders would be happy to help you calculate these amounts.
For marginal borrowers as well as the cream of the credit crop, the decision to refinance a car loan cannot be made without a consideration of one’s entire budget and financial plan. It is always a good thing to reduce loan amounts, interest rates and payments as much as possible, of course. It is even better to do it as part of your overall plan, so if you don’t have one yet, get one!
Topics: Auto Loans |
