A consumer's guide to auto loan refinancing

Refinancing an auto loan is a sure-fire way to build credit score, lower loan costs and reach the goal of debt-free vehicle ownership.
A good vehicle refinancing deal opens the door to more convenient loan servicing, improved customer service and better loan terms. For example, borrowing options allow for lower monthly payments and conversion of variable-rate loans to fixed rates. Auto loans can even be consolidated into a refinanced mortgage. As with all financial decisions, how well a car loan refinance is carried out influences the end result or net benefit to personal finances.
Understanding the refinancing process
Auto loans are restructured by adjusting variables such as down payment; this serves to lower the overall cost of the loan. Contractual obligations can also be redefined to adjust factors such as payment cycle start and end date, vehicle title release and applicable surcharges or fees. Familiarity with loan terminology such as annual percentage rate and amortization are also useful when evaluating what various vehicle loans have to offer.
Where to refinance an auto loan
Locating a superior financing deal is a key step to improving upon a household budget and reaching financial objectives. The U.S. Federal Trade Commission states there are two kinds of vehicle refinancing: direct and dealer lending. Car loans are either issued by dealerships or financial institutions. Moreover, lenders such as credit unions are sometimes able to provide lower-rate refinancing for car loans that were originally facilitated by dealerships. This helps reduce the total cost of the loan when it is paid off during the low-rate period of a variable loan, or within a shorter loan term such as 36 months instead of 60 months.
Auto refinancing tips
Borrowers have a right to know how they are going to use their money, so carefully reviewing the vehicle loan contract and asking questions is a good idea before signing on. As with any loan agreement, having a personal copy of the official document stating the terms provides protection in the event of erroneous claims later on. Scheduling monthly car payments in accordance with household cash flow, and keeping an eye out for loan incentives such as introductory zero percent refinancing, reward points and cash back are also wise considerations.
Vehicle refinancing pitfalls
Refinancing an auto loan is not without pitfalls, so be careful when considering this financial option. For example, the New York Department of Consumer Affairs suggests avoiding “stacking” loans via a used vehicle trade-in even if the new loan is refinanced at a lower rate. This is because the total balance of the new stacked loan becomes higher than when a pre-existing loan is refinanced. Not properly budgeting for a loan ahead of time or miscalculating loan savings by not included refinancing fees is another potential obstacle for borrowers.
Financial institutions that offer auto loan refinancing compete with each other, so it can be assumed that deals exist to attract client business. This is something consumers coverage to their advantage, especially when they are skilled at finding the best deal. Moreover, when it comes to refinancing loans, it’s often a buyers’ market. This demand for buyers even helps automobile loan borrowers negotiate the loan terms with some lenders.