Looking to Refinance My Auto With a Lower Interest Rate – 5 Things to Watch Out For

Owning a car is not only a necessity these days – for many car owners it is also a great pleasure. It is a wonderful feeling to know that you can go anywhere you like at any time out on the open road.

Not only can a car be a pleasure to own, but it also represents a significant financial investment for its owner. Auto loan payments come due each month, which is fine when cash is readily available. However, as expenses get tighter for many people, sometimes the cash a person needs is not always readily available.

At times like this, the ability to save money on auto payments by refinancing one’s auto loan at a lower interest rate can be a very smart move. When refinancing a car at a lower interest rate, it is a win-win situation: there really is no downside. Sometimes, there are closing costs to pay, but as long as you are planning to hold onto your car for a while longer before selling it, the closing costs should easily be offset by your savings in interest payments.

Some people unfortunately walk blindly into an auto refinance situation without really knowing some of the pitfalls that they could walk into. It is a smart idea to learn all of the ins and outs of car refinancing before taking that step.

If you are saying to yourself, “I’m looking to refinance my auto with a lower interest rate,” here are 5 things to watch out for:

1. Do not refinance your auto if it is worth less than you owe on your current auto loan:
You will probably not be able to refinance your auto if it is worth less than the amount you owe on your existing loan. However, the lender may be able to make an exception if you are able to come up with the difference in cash.

2. Watch out for how interest rates are trending:
Average interest rates on auto loans are always going up and down. Take a look at rates over the last one-year and three-year periods to see where they are right now. If they are relatively low, this could be a good time to refinance.

3. Make sure your credit score is the same or better than it was when you took out your existing loan:
If your credit score is the same or has gotten better since you took our your current loan, that could also be a good sign that you should refinance now.

4. Avoid refinancing with your existing lender without checking with others first:
It will be easy to ask your current lender for an auto refinance loan, but it makes sense to ask your current lender last. Instead, get quotes from other lenders first. Then, go back to your existing auto lender to see if they can beat your best offer.

5. Watch out for the higher total interest paid that would come with extending your loan term:
In addition to qualifying for a lower interest rate, another way to reduce your future payments through refinancing is to qualify for a loan with a longer repayment period. The more time over which you spread out your loan, the lower your monthly payment amount will be. However, at the same time, you will end up paying much more in total interest costs over the life of the loan.

Watch out for these 5 things as you look to refinance your auto with a lower interest rate.