Is Now a Good Time to Refinance?

This is a great time to do an auto refinance

If you are not sure if now is a good time to refinance your existing auto loan? We have the answer.

If you are new to auto refinance, then it makes sense to first describe what is auto refinance and outline its primary benefits.

The basic premise of auto refinance is that one bank assumes an existing car loan from another bank, presumably at a lower interest rate. There are many factors that banks consider to determine if a consumer will be eligible for an auto refinance, but some of the prominent variables in their risk scoring models include:

making steady payments on the existing car loan
keeping your overall debt levels low
maintaining steady and verifiable income
having a car that remains eligible for refinancing in terms of age and mileage.

Generally speaking, there are four kinds of banks that do auto refinance loans:

Local Credit unions
Nationwide financial institutions: Bank American and Wells Fargo
Loan aggregators: RateGenius and MyAutoloan
Auto Refinance Loan specialists: RoadLoans

The reasons to apply for refinance auto loans include:

Decreasing your interest rate and paying less overall interest
Lowering your monthly car payment
Removing or adding a person to the lien
Skipping your first month’s payment

Is now a good time to do an auto refinance?
Absolutely. In fact this is one of the best times, historically speaking, to get a low rate and reduce your car interest rate. Incredibly, 3 year loans (36 months) are being offered under 3.0%.

Now is the time to take advantage of this low interest rate environment, as interest rates assuredly cannot stay this low in perpetuity. To get the best rate we definitely encourage consumers to shop around to get the best rate, which is probably the auto refinance tip that we can share. It doesn't take much time to apply and the savings could be substantially better at one bank compared to the other.

Read more for a more comprehensive answer
Most people understand that the credit quality of a potential auto refinance consumer is an important part of determining the new interest rate. However, many consumers have not been made aware that there are two other important factors that determines how low of an interest rate that the lender can offer.

The first factor is the lender’s “spread” that they make from lending out long-term loans with short-term money. The drivers behind the spread are many, but generally the bank's overall cost structure and profit margin target will determine interest rates that they offer. If the bank operates at a lower cost structure, then the “spread” that they earn on borrowing short-term funds and lending them out at longer terms will be higher.

The second factor is the Fed-Funds rate. This is the target rate that the Federal Reserve sets for overnight lending for financial institutions. Simply, this is the rate that that banks charge one another. This generally sets the "floor" for consumer interest rates for auto loans, mortgages, credit card rates, etc.... As the Fed continues to keep an "easy money policy", whereby interest rates are kept low to stoke our economic recovery, we can enjoy historically low interest rates. But these rates cannot continue to stay low forever. The business cycle will eventually run its course and the economy will recover and interest rates will need tor rise in order to keep the economic growth in check. This was demonstrated recently, as the central bank in Europe signaled that higher interest rates are being considered in the spring of 2011.

Conclusion
Rates are really, really low right now. But they will rise in the future - no economist would debate it. So now is the time to refinance your high automobile rate into a lower rate. Now is a very good time to refinance your car loan. If you are paying 8% or more on your car loan, then apply for a refinance and put money back into your pocket. Applying is free and there are no closing costs. Refinancing your car loan into a better rate can save you $50-$100 per month - maybe even more.

What are you waiting for? Refinance today!