Your friends and family keep suggesting to refinance your auto loan, but you aren’t quite sure if it’s truly worth your time. It’s a fixed part of your budget, and if your payments are set up automatically, there isn’t really a reason to think about it. Or is there? Over time, the factors that were true when you took out your loan can change, and that could mean new opportunities to save money — without even changing your spending habits. Sound too good to be true? Check out five ways refinancing your auto loan could put cash back in your pocket.
1. Lower your interest rate.
If you’ve made regular, on-time payments to your loan, they’ve likely had a positive effect on your credit score. Plus, if you can now afford to pay off your loan in a shorter term, those rates may be lower than when you originally took out your loan. If your credit score has increased, or rates have dropped, we could potentially lower your rate and save you some cash.
2. Lower your payment.
As you’ve been making regular payments, your principal balance has gone down. You could refinance for a lower payment at a longer term and free up your cash flow. Keep in mind that you’ll continue to pay interest for the duration of your loan. This option will give you more cash up front, but you may end up paying more in finance charges in the long run.
3. Consolidate other, higher-interest debt.
If a credit card or other unsecured debt has you stressed, consider rolling those balances into your car loan. Typically, you can find lower rates because your loan would be secured with your vehicle, and you may be able to finance up to 120% of your vehicle’s value, with approved credit. You no longer need to worry about making several different payments; you’d only have one to make each month. The key to consolidating debt is to stop using those cards once you transfer the debt to a new, fixed loan.
4. Take advantage of discounts.
When you have everything in one place, often you get special discounts. At UBT, you can qualify for a discount of 0.5% off your rate if you sign up for automatic payments to your loan, from your UBT checking account. It’s worth asking about when you are inquiring about a loan. It also makes sense to watch for promotional rates.
5. Shorten the term of your loan.
Perhaps when you first applied for your auto loan, your income wasn’t as high as it is now, so you went with a longer term to keep your monthly payments a little lower. By refinancing, you can lower your term to help pay off your vehicle a little quicker. Over time, you can save money in interest. Be sure to check that your lender does not have a fee for paying off your loan early.
So how do you decide which option is best for you? Talk to a personal banker today and they can help you decide what fits you best.
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