Auto Refinance Loan Term Limits
What are the term requirements for auto refinance?
Maximum term
A lender will have limits on the maximum term based on vehicle type, age, mileage, and LTV. Many lenders will offer a 72 month option on newer model vehicles and some offer 84 month option. Read further because you should have a clear understanding about what the loan term can do for you.
Some reasons to refinance your auto loan:
If you are in the market to lower your current auto loan interest rate, then there are several goals that you might have to accomplish with a car refinance.
- Lower your car payment
- Lower your interest rate
- Reduce total interest paid over the loan
- Payoff your car fast as possible
- Remove a person from your lien
If your goal is to lower your car payment, then there are a couple of levers that you can pull to accomplish that end.
- Reducing your interest rate
- Extending your term
Reducing your rate
Firstly, and most importantly, you will work with your lender to achieve a lower interest rate. By reducing the percentage of interest on the loan, and by keeping the term constant, you will be able to decrease your monthly car payment.
Extend your term
One other way that you can lower your car payment is to extend the term of the loan and keep your interest rate constant. For example, if you were paying 10% interest and the current term on the loan was 40 months on $17000, then your monthly car payment is around $500. If you decide to do an auto refinance, and the lender cannot reduce your rate, but the lender offers to extend your term to 60 months, then your monthly payment goes to $360. That translates into a monthly savings of $140.
If you want to dramatically reduce your payment, then decrease your interest rate and extend your term will deliver exceptional results. For example, if you were paying 10% interest and the current term on the loan was 40 months on $17000, then your monthly car payment is around $500. If you decide to do an auto refinance, and the lender reduces your rate to 7% and offers to extend your term to 60 months, then your monthly payment goes to $335. Total monthly savings of $165.
If the lender offered a term of 72 months for the same example, then your payments would be $290. Total monthly savings of $210.
Increasing term has biggest impact on lowering monthly payment
The length of your term often will have the most profound effect on lowering your monthly payment.
But... increasing term results in paying more interest over the loan's life
Be mindful that if you extend your term that you will likely pay more interest over the course of the loan. If you have the means, then we suggest that you reduce your rate and reduce your term in order to cut down on total interest paid on the loan. However, if your situation dictates that you try to reduce your monthly payment, then reducing your rate and extending your loan term will lower your payments, often times with dramatic results.
