Homeowners have been reading and hearing plenty about refinancing over the past couple of years. Anyone who applied for a mortgage several years back, when interest rates were at their peak, is a candidate for getting that mortgage refinanced at a lower, more affordable rate. Refinancing can apply to car loans, too.
Car buyers who took out a high-interest loan may be in the same predicament, and can take advantage of a similar procedure. Yet, not many auto owners with hefty loan balances are looking into that step.
According to a recent online survey of more than 2,000 consumers for CarFinance.com, awareness of auto refinancing is high, yet few are taking advantage of the potential benefits. Almost one-third said they were aware of the possibility of refinancing a car loan, but only 12 percent had actually done so. CarFinance.com points out that this limited activity is curious, because auto refinancing is “much simpler” than refinancing a home mortgage, and approval rates are higher, too.
Respondents were almost exactly “evenly split” about the relative importance of the three principal benefits of refinancing. One-third indicated that paying off the loan sooner was most important, another one-third specified a lower monthly payment, and another one-third leaned toward a reduced interest rate, which has happened because the credit “climate” has changed dramatically lately.
As described by CarFinance.com, the procedure is indeed simple. The car owner fills out an application, seeking an opportunity to be approved at a lower interest rate. The procedure can be done online, “securely and privately.”
How much difference can it make? As an example, CarFinance.com cites a hypothetical owner with a $25,000 car loan, taken out during the recession, with a 72-month term and a 19-percent interest rate (Annual Percentage Rate). That amounted to a $584 monthly payment. By refinancing today with a 10-percent loan, the monthly payment could drop to $463 (a savings of $121 per month). Today, “many Americans are trapped in car loans they financed during the recession,” says CarFinance.com CEO Jim Landy, “when interest rates were much higher.” In view of the “more friendly lending climate” nowadays, “why should they pay 19 percent interest, if they can qualify for 10 percent?”
As with any loan, applicants need to be absolutely sure what they’re signing on for. Make certain you know the new interest rate (compared to the old), the amount of the refinanced loan, the new monthly payment, and the number of months during which you’ll be making payments. If anything doesn’t look right, it pays to consult an independent advisor who can look into the details.