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Is a refinance car loan a good idea?

 

A refinance car loan can save you money on your current lease or loan obligation by reducing your current loan rate. A refinance car loan can occur in several ways, and is usually restructured depending on your personal data information.

A refinance car loan may be for you if you; want to take advantage of lower interest rates and lower monthly loan payments; are locked into an auto lease and want to convert it to a standard loan; want to cash in on the equity of your current vehicle; want to improve your credit rating; or are looking to purchase a new home and want to qualify for a better mortgage.

A refinance car loan can occur by replacing your current loan with a lower interest rate loan over the same period of time remaining on your loan. You can create a new loan term which will help you keep your payments down by extending the term on your loan. Or you can reduce the length of your loan by reducing the total interest expense.

To obtain a refinance car loan you first need to supply your lender with your credit information. They will then call you back with your approval and will go over the rates and terms. It’s a simple way to improve your debt-to-income ratio, and provide you with that much needed rate drop.

It sounds like a great deal: Buy a car and finance it for five, six, or even seven years. Payments are smaller. You can buy more car. And automakers and banks make it easy to do.

So what’s the hitch? Long-term debt.

By not paying off their loans fast enough, car owners run two financial risks down the road. They could end up still owing money on their old car when they go to buy a new one. Worse, they might owe more on their vehicle than it is worth.

Such problems have become more pronounced as the price of new cars has risen – to more than $25,000 on average last year – and auto companies have eased credit terms to keep cars moving off the lot.

“It’s a vicious cycle,” says Peter Humleker, a former auto dealer and now consumer advocate and author of the e-book “Car Buying Scams.” “Consumers just keep digging themselves a bigger, deeper hole.”

The only way out is to buy a less expensive car or to hang onto the old one until it’s paid off, says Rob Gentile, head of the car-buying service at Consumer Reports.



 

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