Car Loans: When To Refinance

When it comes to refinancing your car, it's important to realize that there are really only three good reasons to do so:

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.

You should NOT refinance if your reason for doing so is to get equity out of your car to pay other bills. Since cars are depreciating assets, they do not have any equity. This means that every day they will be worth less than the day before.

Banks sometimes offer "car equity loans," but don't get sucked it. Even if your car is worth more than you owe right now, that won't last long. Borrowing against any equity you have today is always a mistake - all you're doing is stealing from your own future by adding more payments to your current loan. Would you rather make an extra two years of payments on your car so that you can have an extra $100 today? Probably not.

If you do choose to refinance for extra cash now, you will regret doing so in two or three years when you are making those extra couple years of payments. The only reason you should refinance is if you are at risk of defaulting on a major asset.

If refinancing is necessary, be sure to keep in mind:

Don't pay any fees unless they're minor (such as the $20 your bank may charge for a new title or lien). Walk away from "refinancing fees" and "loan origination fees," and other charges along that line. The bank should be happy for your business and shouldn't charge you for it.

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.

Be sure to consult with your credit union when refinancing. Their rates are excellent, and they really want to help you. Credit unions are more willing to work with a customer than a regular bank is, particularly when there is risk of defaulting.

Article Source: http://www.search4allinfo.com

Author Jason Lancaster, a car industry veteran, created AccurateAutoAdvice.com. You'll find accurate advice on auto loan refinance and when to refinance your car.

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