(StatePoint) Most people know they can refinance their mortgage, but less than half are aware that they can also refinance their auto loan, according to a study by Harris Poll for Ally Financial. It’s a simple task that could reduce your car payments by about $1,300 a year.
The following considerations can help you determine whether refinancing your auto loan is the right step for you.
• Interest rates: Can you reduce your monthly costs by lowering your rate? Compare your current interest rate to those advertised. Keep in mind that there are several aspects of your financial history that may have impacted your interest rate for a loan, including credit score and credit history. If your credit score has significantly increased since you financed your vehicle, it may be time to refinance to a lower interest rate.
• Tight monthly budgets: If you need to make some room in your budget due to changing life circumstances or simply have a desire to sock more money away into savings, refinancing your auto loan is a move that may have a substantial impact on your finances. For example, those who have refinanced their vehicles through Clearlane, Ally’s online auto financing platform, have reduced their monthly payments by an average of $112.
• Reducing the term: Another reason many choose to refinance is to reduce the number of payments they will have to make, with the goal of reducing the total amount of interest paid over the course of the loan. This may appeal to you if you can now afford a higher monthly payment than when you purchased your vehicle, thanks to a raise or new stream of income.
If you choose to refinance, be sure to review your loan agreement and terms to make sure you understand your current loan. You should also be aware of any costs that could be incurred by refinancing or changing the terms of your loan.