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Refinancing A Car Loan

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Most people don’t think of trying to refinance their car loan, but this is one of the options available to them if their finances are starting to get tight. It’s also possible that they fell for a line their original lender gave them, that no one else would ever have approved their loan, so they got the best deal they could, even if their Annual Percentage Rate (APR) was 21% to 24%. The person may have discovered, too late, that they could have gotten a much lower APR elsewhere, and thought they were stuck. But this isn’t always the case.

Even if a person’s credit rating isn’t the best, it will likely be possible that they can find another lender willing to finance a loan for a lower APR than the original. (And it will almost always be a different lender; the original lender likely is not going to refinance their own loan, when the terms of the current one are designed to make them so much money.) The APR of the refinanced loan may not go all the way down to 6% (though sometimes it can), but even cutting the original APR in half will save money both in the long run from total interest paid, and in the amount a person pays in their monthly installments.

One factor a person with a car loan needs to consider is how quickly they refinance, meaning how soon they do it after taking out the original loan. Most car loans are weighted so that the heaviest burden of interest is in the earlier months, with payment on the actual principal being heavier in the later months. This is done, of course, so the lender can be sure of getting all that lovely interest money no matter what else happens with the loan. If a person waits too long before refinancing, they could end up saving almost nothing on interest. So the sooner refinancing can be done, the more money the borrower will save.

After the recent financial collapses and the recession that followed them, many lenders have tightened up and are reluctant to give new loans to sole individuals (in contrast to corporations), and especially to those with a bad credit rating. It’s still possible to find this sort of assistance, but it does require that the borrower do their research to find it.

One factor that might spur them on is that if they do get this refinancing at a lower interest rate and lower payments, they’ll be much more likely to pay off the entire loan in full without defaulting. And this will improve their credit rating so they’ll be likely to get much better terms from the very start, next time they need a loan.

There are many reasons to try to refinance a car loan. The person may simply want to take advantage of new lower interest rates, to reduce their monthly payments and pay less total interest. Or they may have realized that they were deceived into signing up with a much higher APR than they really needed to. Whatever the case, if it’s possible to refinance and improve their situation, they will benefit from doing so. They will save money and, as a nice bonus, improve their credit rating at the same time.

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