When you take out a loan to finance the purchase of a new or used car, you don’t have to be stuck with that loan until the end. If you refinance your original loan with a new lender, you could end up saving money by getting a lower interest rate and monthly payment. But as with any financial decision, it’s best to take time to consider whether or not refinancing makes sense for your individual circ*mstances. If it seems right for you, make sure you avoid these common mistakes when it comes to refinancing so you can maximize your savings.
Drawing It Out
While it may seem tempting to switch to a longer loan term, it usually isn’t worth it in the long run. Stretching your current loan term to a longer-term loan will lower your monthly payment for the time being, which can be beneficial if you are in need of immediate relief. But a longer loan term means you will be paying interest on that loan for longer. The cost of added interest will outweigh the temporary benefit of a lower monthly payment.
Going Upside-Down
Extending the life of your loan could also lead to your loan being upside-down, meaning you owe more on the car than what it’s worth. As long as you still owe on the loan, you’re required to keep making your payments on time, even if your car has become useless. You don’t want to get stuck in a situation where you’re still making payments on a car you don’t even use. Refinancing is only worth it if you come out on top with money saved in the end.
Catching Penalties
Check to see if there is a pre-payment penalty on your current loan for paying it off before the end of the loan term. Depending on how high the penalty is for early payoff, you could wipe out any amount you would have saved by reducing your interest rate. You’re best off finding a lender with no pre-payment penalty. Robins Financial has no pre-payment penalties on our auto loans.
Missing Payments
Stay on top of the entire refinance process, and don’t assume anything is a done deal until you know for sure. You may think your existing loan has been taken care of and you don’t have to keep sending in payments, but if you run into any delay during the process, you still need to make sure your existing payments are made on time. Any late or missed payments can damage your credit and hurt your chance to refinance. Confirm with both your existing and your new lender before you stop making payments.
Waiting Too Long
If you crunch the numbers and decide that refinancing makes sense for you, don’t wait! Interest rates are typically lowest on newer vehicles, and many lenders have model year limits for refinancing, so you want to act sooner rather than later. Don’t let the time run out on a good deal that will help you save money.
Refinance and save with Robins Financial to drive home your savings. Check out our auto loan calculators to help you estimate your monthly car payments. Give us a call or request an appointment any of our branch locations to see how much you could save. If you’re ready to refinance, apply online now.
