If you acquired a student car loan with a high rate of interest, refinancing is a smart way to reduce the cost of your repayment. Refinancing is just like taking out a second loan, but with a much lower rate than the first. If you have been paying your car loan for the last six or 12 months, check your credit report to see if your credit score has improved and if refinancing is an option.
Why Refinance Your Car Loan
Some people think that loan refinancing only applies to mortgages. However, home loans are not the only type loans which can be refinanced. Even a bad credit car loan borrower can benefit from refinancing if the timing is right.
Keep in mind that the length of repayment period is much shorter for a car loan than a mortgage. A typical auto loan repayment term can be 2 to 3 years. Refinancing your car loan would extend the repayment period. Therefore, if you’re already half-way through the repayment of your car loan, then it may be better to continue until your loan is completely paid than to refinance. On the other hand, if you still have at least two years left to complete your auto loan payment, refinancing it now can enable you to save a great deal on interest rate fees.
Car loan lenders reserve their best loan deals to customers with good credit. If your credit score has improved, you can surely qualify for a much lower interest rate. If you can reduce your current rate by even just 1%, you can save much as $100 per month from your monthly car loan payments. Think how much money you can save in a year through car loan refinancing.
Bad Credit Car Loan Refinancing Tips
If you have decided to refinance your auto loan, consider the following tips:
Compare loan deals. You can check with your current lender if it offers a refinancing program. However, don’t forget to check out what other car loan lenders offer. By comparing deals, you can surely choose a reasonable car loan package.
Negotiate for a lower rate. Your primary goal for refinancing is to reduce your monthly loan payments so don’t be afraid to negotiate with a potential lender. Find out what your strengths are and use these to your advantage. Aside from an improved credit score, do you have good academic grades? Do you have a good driving record? If so, don’t forget to emphasize these points when you meet with a potential car loan refinancing lender.
Read the fine print. Just as caution is important when applying for a student car loan, you should do the same precautionary measures before signing up for refinancing. See to it that you will not be subjected to pay hidden fees, despite the reduced rate.
Submit your payments on time. Once you have signed a refinancing deal, continue submitting your monthly car loan payments on time so that your credit score can improve continuously. By the time you are finished with your car loan repayment, you would have regained a good credit standing as well.
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