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Refinancing your Car |
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If heavy car finance interest rates are killing the pleasure of driving your new car, then you can resort to refinancing your car. This is the best way!
Sometimes, even individuals with good credit record can be caught in the vicious circle of high interest rates on auto loans. This is because in the excitement of purchasing a new car, they ignore important aspects of the financing deal. Later, when they discover the agreed sky-high financing rate, they are completely shocked. Refinancing is also suitable for those suffering from a past bad credit experience even if they have paid the installment of one or two years of the original loan. Here, a decrease of only 1% or 2% in the interest rate can save a lot of money in interest and reduce the amount of your monthly payments. For instance, assume that a borrower is paying 8.9% interest on a $10,000 loan over a period of 60 months. Then, the monthly installment will amount to $207.10 and interest will be $2,426.74. Reduce this interest rate to 6.9% and you will find that the monthly installment will automatically decrease to $197.54 and the interest to $1,853.05, thereby saving you $573.09. Since the interest rates are relatively lower at this time, you should start thinking in terms of a new and improved auto loan. The first step in this direction would be to consider your present loan seriously. You should also find out if the rate on your present loan is calculated with simple interest. With this type of loan, you're made to pay the interest everyday on the basis of the balance you owe. Even in this situation, refinancing produces the biggest savings when a simple interest loan without any prepayment penalties is refinanced into a simple interest loan having a reduced rate. What are the options of refinancing? In this regard, you should analyze the deals given by local small banks and credit unions. Many of them also send refinancing solicitations to recent car purchasers. So, always try to get hold of them. You can also search for it online. E-Loan and PeopleFirst.com are a few of such sites that provide competitive auto loans. Also, try to find out the fees when you are searching for an auto loan. States may charge anything between $4 to $40 for replacing one lender's name on a car's title by another. While a few lenders won't ask you to pay it, some others may pass it on to you. Some lenders also charge processing fees. But before considering the refinancing offer, you must ascertain that your original loan is a simple interest loan. A few of the sub-prime lenders provide precomputed loans. Once you take this kind of loan, it is mandatory to repay the principal along with the full interest amount counted for the entire period of loan. In case you've accepted the precomputed loan, then your lender may use the old and expensive "Rule of 78s" formula to calculate a rebate of finance charges if you agree to repay it early or refinance it. In fact, this rebate is nothing but a sneaky prepayment penalty. With the help of "Rule of 78s" formula, a lender typically gets three-quarters of a loan's interest in the first half of a loan's payments. So, the earlier you try to repay one of these loans, the more you'll have to repay. And, the higher the interest rate, the more is the payoff amount. Anyway, if you want to finalize a good financing deal, then you have to ascertain that you don't have any bad credit report. Keep in mind that the earlier you refinance a high-interest auto loan, the more dollars you'll save in interest. So, go ahead and take it. |
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