Getting an auto loan is a bit like investing in the stock market—it’s all about timing. But when you need a new car, you often don’t have the luxury or flexibility to bide your time until the market is just right. Luckily, you can still cash in on good deals when they appear by refinancing your auto loan. Car loan refinancing lets you pick the right time to lock in low interest rates so you can save money in the long run. Here are four clear signs that it might be time to consider refinancing your car loan.
1. You Got Scammed by Auto Dealer Loan Markups
Get this—if you got an auto loan directly from your dealer, they probably tacked an extra 1 to 2 percent onto your interest rate. It’s called an “auto dealer loan markup” and it’s completely legal. The rationalization is that it’s akin to a finder’s fee. The dealer does the lender the service of finding a borrower, and for his trouble, they get to split the profits for an additional markup he adds to the interest rate you would have qualified for if you had secured your own financing. The lesson: convenience can be costly. How costly? If you were to get a 5 year auto loan for $20,000 at 10% APR, you’d pay $424.94 a month without markup, for a total of $25,496.40. But if the dealer tacked on his extra 2% as a markup, you’re looking at monthly payments of $444.89, for a total cost of $26,693.40—a difference of $1,197, just for the service of finding you a lender. You can do better.
2. Your Credit Score Has Improved
Late payments, loan denials and other adverse items on your credit reports are like sandbags on your credit score. And just like a hot air balloon, your credit score will rise once those sandbags are shed. Let’s say you bought a car 6 years after you declared bankruptcy. One year into your auto loan, your bankruptcy will have expired from your credit report, which could boost your credit score by several points. After passing this threshold, you may be able to qualify for a lower interest rate, thus saving you hundreds of dollars in the long run with an auto loan refinance.
3. Interest Rates Have Dropped
Our economy is inherently boom and bust. So, unless you bought a car when the federal funds rate was at an all-time low, it’s just a matter of time before the fed rate drops below what it was when you originated your auto loan. Determining if the federal interest rate has dropped is incredibly easy—simply visit FederalReserve.gov and look at the historical data. Look for the year when you bought your car and compare it to today’s rate. Actually, you probably won’t even need to do this, since a drop in the fed rate is often hot news. Of course, the fed rate doesn’t directly affect auto loans—but experts say that the effects of cheaper credit trickles down to auto loans within about months of the federal interest rate being cut.
4. You Can Get a Better Deal
This last sign may seem a little overly Zen-like, but it’s true: one of the best ways to see if you can get a better deal by refinancing an auto loan is to see if you can get a better deal with a refinance. The fact of the matter is that it’s faster and easier to crunch the numbers to see what kinds of interest rates you’d qualify for than it is to check your credit history, track the fed rate or call up your dealer and grill him on how much he ripped you off two years ago. You can get auto loan refinance quotes from multiple lenders instantly via online bidding and get concrete numbers on how much you can save.
This is a guest posts from the folks at MoneyAisle, an online resource where consumers find great rates on auto refinance loans. MoneyAisle runs live, reverse auctions (like a reverse eBay) for consumers shopping for financial products. Consumers get exclusive rates and instant one stop shopping in a fun, dynamic auction format, and banks and Credit Unions get inexpensive access to new customers, accounts, and loans.