Car Finance, Car Loans

Should You Refinance Your Auto Loan?

We all make mistakes somethings and buy things we do not need. It can happen with something as simple as a pair of shoes and more significant things such as cars. Instead of giving the car back, it may be worth considering to refinance auto loans.

Why and when to refinance a car loan?

The golden rule is to not refinance a car in the first couple of years since you got it because most of your payments so far were interest and very little covered the actual loan. If the payments become too difficult to manage and you already paid at least 30% of the value of the car, you should consider refinancing. If you give back the car, not only that you already lost the interest paid but also the amount that was paid so far towards the loan.

When you give the car back, the loan company will apply depreciation costs. This means that the car will be sold at a lower price than the purchasing price and it may not cover the amount due to be paid to cover the loan.

What to do next?

To refinance auto loans and reduce the amount of money lost it is recommended to not go for the maximum period. Each extra year means paying another year of interest thus more money lost. You should extend the period to reduce the monthly payments but without adding too many more years of payments.

To save even more money, consider looking at different offers. Interest rates may vary from one lender to another. You should also keep a close eye on fees and commissions that you have to pay as it is possible to get a lower interest but the amount paid to be larger. Try to compare rates on loan comparison sites and always look at the terms and conditions of the loan before signing anything.

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