Benefits of auto refinance
There are many good benefits to refinance your auto loan
Benefit #1: Lower your payment
With any type of refinance, mortgage or automobile and the like, the overarching goal is to lower your monthly payments. This can be accomplished in 2 ways: Lower your rate or extend your term (or combination).
Lower interest rate
One of the ways in which consumers can lower their payment is by reducing the interest rate on the loan. Let’s review the following refinance savings scenario where the consumer is able to lower their rate.
Current monthly payment: $500
Loan Amount |
Term |
Interest Rate |
Monthly Payment |
$20,000 |
60 |
17.25% |
$499.74 |
You’ve decided to refinance your car loan after the first 12 months of your 5 year loan. At the end of the 12 months, the principal amount on loan has been reduced to $17,241. (Note: Consumer made $6,000 payments, but the principal only decreased $2,800).
What would your monthly payment be if your interest rate was lowered by 3%, 5% or 7%?
Loan Amount |
Term |
interest rate lowered |
Interest Rate |
Monthly Payment |
Monthly Savings |
$17,241 |
48 |
3% |
14.25% |
$473.32 |
$26.42 |
$17,241 |
48 |
5% |
12.25% |
$456.16 |
$43.58 |
$17,241 |
48 |
7% |
10.00% |
$437.30 |
$62.45 |
In the middle scenario, the consumer’s interest rate was lowered 5%. This resulted in over $40/mo savings that is put back into your pocket. Many lenders claim they can save between 3-5% points on your car loan.
Extend your term
Another way in which consumers can lower their monthly car payment is to extend the term of their existing car loan while keeping the same interest rate. Note: this will lower your payments, but it will increase the total amount of interest paid on the loan.
What would your monthly payment be if you extended your term to 60, 72, or 84 months?
Loan Amount |
Term |
interest rate lowered |
Interest Rate |
Monthly Payment |
Monthly Savings |
$17,241 |
60 |
0% |
17.25% |
$430.80 |
$68.94 |
$17,241 |
72 |
0% |
17.25% |
$385.95 |
$113.79 |
$17,241 |
84 |
0% |
17.25% |
$354.83 |
$144.91 |
Above you can see that the interest rate was held constant, but the term was increased. The payment savings are substantial – much more so than just lowering the rate and keeping the term constant. Note that some lenders will not do loans greater than 60 months in duration.
Benefit #2: Simple process
Unlike mortgage refinance, auto refinance is much faster and simpler. The application usually takes about 10-15 minutes and the credit decision is usually delivered within an hour or less. General time to complete the process is roughly 72 hours.
Benefit #3: No costs to refinance
Mortgage refinance is infamous for all of the costs that are involved to get a new mortgage. Application fees, appraisal costs, paying for points, common bank fees, and other hidden fees can add up to tidy sum and make the refinance costly. Auto refinance, on the other hand, involves NO AUTO REFINANCE FEES and there is no cost to apply.
Benefit #4: Loan that is available for non-prime consumers
Auto refinance is designed to help all types of credit customers. Most often, the loan is best for consumers who have had credit problems in the past, but who have made steady payments on their loan for 6-12 months. Getting an auto refinance for bad credit customers is doable.
Benefit #4: Remove a party from the lien
Another reason to consider doing an auto refinance is to remove an unwanted 2nd person that is listed on the loan. The most common reason is due to divorce.
Benefit #5: Skip the first month’s payment
Some lenders will allow the consumer to skip the first payment as an incentive to refinance with their bank.
Benefit #6: Get a cash payout
Sometimes if the consumer has a great deal of equity in the car, the consumer can receive a cash-out. This is similar to doing a home equity loan, but for applied to a car loan refinance. Given today’s credit environment, these types of payouts are not very common.
