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Refinancing an Auto Loan Could Yield a Better Deal

Here is an article on Auto Loan refinancing, from NerdWallet:

If you’re making payments on an auto loan with a high-interest rate, you may want to check into refinancing. Consumers sometimes get stuck with a high-rate loan when in the excitement of shopping for a new car, they neglect to find the best financing. Or it may be that a loan arranged by the dealer turns out not to be such a great deal.

Even if your loan was well-priced when you made the purchase, circumstances change. Perhaps your credit score has gone up after many months of faithful, on-time payments. You may find that you can secure a lower interest rate or better loan terms with a different lender.

Like refinancing a mortgage, refinancing a car loan can result in paying less in total over the life of the loan, or it can lower your monthly payments -- sometimes even both. Unlike a mortgage, refinancing a car usually doesn’t involve an appraisal, takes less time and costs less to complete. In both cases, you’re borrowing at least enough money to pay off the original debt, typically at a lower interest rate.

Credit unions tend to offer lower loan rates than banks, particularly when it comes to auto loans. Credit unions charged an average of 2.66% for a three-year used-car loan in the spring quarter of 2015, compared with the average 5.13% charged by banks, according to the National Credit Union Administration, a federal regulator. Of course, rates change, and the terms you might receive will depend on the current market and your credit score.

A refinancing that shaves points off your rate can save you a lot of money in interest costs over the life of the loan or leave you with more manageable monthly payments, depending on the terms of the new loan. You can plug your current auto loan’s interest rate, monthly payment, and remaining balance into this calculator to get an idea of how much you could save. Lenders such as Service One Credit Union occasionally offer special promotions during which members may snag even better deals on auto refinances.

Before you sign on the dotted line, do your homework carefully. Add up what you’ll pay in principal, interest and fees if you refinance and compare that total to the amount you have left to pay on your original loan, keeping in mind you may have already paid most of the interest due. There may be additional costs for getting out of your original loan. Some lenders make you pay the remaining interest due or a prepayment penalty. If your immediate goal is to lower your monthly payments to make them more manageable, you can opt for a longer term. But be aware that you’d pay interest at the new rate for a longer time, so you could end up paying more over the life of the loan.

If you find a lender offering affordable terms, refinancing a high-rate auto loan can be a great way to knock down your payments or potentially reduce the overall cost of your vehicle, giving you some additional breathing room in your budget.

Jeanne Lee, NerdWallet

NerdWallet© Copyright 2015 NerdWallet, Inc. All Rights Reserved

For more information about Service One's auto loan specials, check out our Media Center's Loan News. Looking to apply? Submit your application with Service One online, by using your smartphone, or by stopping by any branch location.

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