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Why Refinancing An Already Low Auto Loan Rate Makes Sense
By EchoBay Loans Staff Writer

You negotiated a great deal on the car you bought and the auto dealer gave you a low interest rate, so there's no need for you to refinance; right? After all, if you were to ask your lender they would smile, pat you on the back and reassure you that there is absolutely no need for you to check into auto refinancing. In reality, that couldn't be any further from the truth. No matter how great you think your interest rate already is and no matter what your current lender tells you, if you can qualify for a refinanced loan with an interest rate even one percent lower, you may be able to save hundreds of dollars with auto refinancing, at no cost to you.

That great interest rate you received on your auto loan probably has a loan term of 36 months or less, which means substantially higher monthly payments.
If you need added cash flow in your budget, you're going to want to look into auto refinancing in order to achieve a longer loan term and a lower monthly payment. For example, if you borrowed $20,000 at an interest rate of 5 percent over a 36-month period, your monthly car payment is going to be $599. If your finances change, you may not be able to continue to afford that car payment and you could risk losing your car.

However, auto refinancing for a longer term can result in a more manageable monthly payment. If you still owed $20,000 on that loan and you refinanced at the same rate of 5 percent but over a 60-month period, your car payment would drop to $377 per month. That's a difference of over $200 per month. This type of auto refinancing will cost you more money in the long run, but it could save you from losing your car and can help put more dollars into your monthly budget.

Of course, the above to scenario doesn't have to apply to you in order for you to benefit from auto refinancing. Even if you have a low interest rate and the term is spread out over enough time to keep your payments affordable, if interest rates have dropped even one percent since you took out your loan, or your credit score and financial situation has improved, you're going to want to look into auto refinancing. If you're thinking that a one to two percent drop in your auto loan interest rate isn't going to make that much of a difference, think again.

A single percentage point can equate to hundreds of dollars saved over the life of your auto loan. For example, $15,000 spread out over 48 months at 7 percent interest would equate to monthly payments of $359 and a total cost of $17,232. That same $15,000 spread out over the same amount of time at an interest rate of 6 percent equates to monthly payments of $352. While that seems like a completely insignificant drop when you look at it from a monthly basis, over the course of the 48 month term, you would save a total of $336.

If $336 doesn't impress you enough to look into auto refinancing, maybe you should take a look at the difference a 2 percent rate drop would make on the same loan. Let's take the same $15,000 loan, the same 7 percent interest rate and the same $359 monthly payment and reduce that interest rate by 2 percent to a 5 percent interest rate. Your monthly payment then drops to $345 and you save $672 over the life of your loan. The lower the rate and the larger the amount of your refinance, the more money you can save.

If the saying that "you can never have too much money" is true, then you're going to want to do everything you can to pinch pennies whenever it's possible. Refinancing your auto loan at a lower interest rate is a great way to save hundreds of dollars with minimal effort, no cost and absolutely no sacrifice.

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