Even when you are maintaining good credit standing and paying all of your bills on time, changes in the financial markets as well as improvement in your credit score can lead to potential savings. These potential savings can be yours if you take the time to do your homework and then approach creditors about renegotiating your existing loans. Since car loans are one of the biggest debts American consumers will have, auto refinancing is a proven method of leveraging market conditions (and your improved credit) to reduce the total repayment on a loan.
Even when the marketplace for loans seems turbulent, as it has since mid-2008, various factors can come into play in various combinations to make refinancing your loan(s) a good decision. Although a 1/10th of a percent drop in a loan rate is not going to save you much, some consumers have used auto refinancing to cut three, six or even more points off their car loans. It can happen slowly, and often does, but it can also happen in a relatively short amount of time, too. Most everything you do better in your credit relationships will result in a positive credit report, sometimes quickly, sometimes over a period of time.
Onward and upward
As negative, older information starts falling off your credit report – and new earnings and assets data gets included for the first time – your credit score can move up as much as 50-100 points in a year or two. Since most auto loans are now between four and six years, there is plenty of time for your improved credit standing to positively affect an auto refinancing plan. It is not unheard of for consumers to refinance a long-term auto loan two times, even more.
You will need to crunch the numbers carefully, of course, and if you do not feel qualified to do so, get some help from your banker, accountant or financially sophisticated friend. With a drop in interest rates plus an increase in your credit score, you could be looking at some serious savings in interest expense over the life of the loan. Auto refinancing is second only to home refinancing as a means of saving loan expenses both now and into the future.
Some consumers, because of marginal credit scores and short credit histories, have fewer lenders to choose from for their initial auto loans. As scores increase and the years go by with timely payments, these consumers will benefit from more choices and lower rates when they consider auto refinancing. As always, of course, they should get the opinion of a good financial planner if they lack understanding in the matter. A broad view that considers all the variables, from income and expenses to savings and insurance, is the smart way to go.
The better their scores and histories, the more lenders consumers can approach for this auto refinancing, too. They can play lenders off each other to get the best rate, and shop around for other terms, as well – lower late fees, longer grace periods and so forth. As consumers’ credit standing and scores continue to improve, the better position they will be in to renegotiate the terms of auto loans, as well as any others.