Ready to Refinance Your Auto Loan?

Have you recently bought another car? Did you make this purchase while still paying off another auto loan? Your monthly bills have increased and your checking and savings account have taken some hits. There’s no need to fret. You can reevaluate your situation with a practical money-saving solution – refinancing an auto loan.

Before applying to refinance an auto loan, you need to understand what actually happens when you refinance. When you signed that contract a couple of years ago, you committed to paying back the remaining principle of the car’s total (minus the down payment) plus interest on the principle. When you refinance an auto loan, you are asking to adjust your loan terms which could change your monthly payments or interest rate.

Here are some reasons why you might want to refinance your auto loan:

• Better credit
• Saving money over time
• Consolidating your loans
• Paying off a loan early
• Lowering your monthly payments

Let’s look at the pros and cons of refinancing your car loan. Let’s start with the pros.

• You could receive a better interest rate. If you paid your minimum monthly payments on time on your first car loan, you have helped raise your credit score. If your credit score has improved since you took out your first car loan, you might qualify to receive a better interest rate. This will result in lower monthly payment.
• You could save money over time. When you contact your loan lender to discuss your current rates and the balance left on your loan, you might discover that you can manage paying off the remaining balance now. While this could cost you a pretty penny now, you are saving all the money that you didn’t have to pay toward the interest.
• You could shorten the length of your term. If you are able to throw a little extra toward your first loan payment, you might be able to shorten the length of your term. You can go from having four years left on your loan to having two years left on your loan by paying more each month. This will save you on interest in the long run. Plus, this allows you to remove the lien from your car title sooner too.
• You could consolidate your two auto loans into one. Chances are, if you financed your cars through the dealership where you made your purchases, you are paying two different institutions for your loans. You can consolidate your two loans into one, easy payment. Plus, you can set up automatic payments with Alltru’s online banking to make the process even easier.

Now let’s take a look at some of the cons for refinancing your car loan.

• You might pay more toward interest. You might decide to refinance your loan because you need to decrease your monthly payment in order to pay other bills. Doing this means increasing the length of your loan. Over time, this results in paying more toward interest and not the principle of the loan.
• You might have to pay extra fees. Some lenders require you to pay extra fees to refinance your car loan or to pay it off early. At Alltru, we charge $0 in fees to refinance your car. Rest assured that no hidden fees will come when you make the switch.
• You might become upside-down. If you refinance your loan and increase your term, you are giving your car more time to depreciate while still paying off the loan. Once your car value dips below what you still owe, you’re upside down. If you decide at this point to try to sell your car, you still owe the difference to the lender.

When you consider refinancing an auto loan, it’s important to consider your entire financial situation. Do you need to save money now or in the long run? Whatever you decide, Alltru is here to give you accessible financial tools and products to set you up for success.