According to Investopedia, you can save $50 per month or 2% in interest rates by refinancing your auto loan. Indeed, refinancing is one way to extend your income and get through hard economic times. Here are five strategies to lower your auto loan payments.
Refinance the Loan for a Lower Rate
If you’ve been making regular payments on your car loan, the chances are that your credit score has improved. In that case, you can refinance to get a better interest rate.
When your debt to income ratio increases, you present less risk to the borrowers. You can reduce your rate by up to 2.4%, which may seem small but can add up to thousands of dollars per month.
Even when you have bad credit, auto loan refinance may still be possible. According to Lantern by SoFi, you can refinance if you have a positive track record of making payments on your loan. Shop around first before committing to any available options.
Extend the Term of Your Loan
You may also opt to extend the term of your loan for lower monthly payments. While shortening the duration reduces your interest rates, it means your monthly obligations increase. Additionally, some lenders may have a fee for paying off the loan early.
Your interest expense could increase over the term of the loan. But you can free up the money you spend on monthly obligations. Plus, there are many lenders with varying terms that can match your requirements.
Trade Down for Lower Monthly Payments
If refinancing isn’t an option, you can opt to trade in your car for a cheaper one. Some dealerships can buy your vehicle without requiring you to buy one from them. If you have the time and know-how, you may also choose to sell the car yourself.
You can shop for a car online from the comfort of your home. Some dealers will pick up your vehicle and pay you on the spot. You can repay your loan and buy a less expensive car.
Go for a Used Car for Lower Payments
According to experts, your car can lose up to 20% of its value when you drive out of the dealership. But that also means you can find many used vehicles that are as good as new.
Monthly payments for a used car are about $400 while a new one is about $540. By going for a used car, you can lower your monthly payments by around $140. You can use the extra money to pay off other debts and improve your credit.
Consider Debt Consolidation
If you’ve been making multiple payments, you can consolidate them into your car loan. Lenders will usually offer a better rate because your vehicle will serve as the security. You may secure up to 120% of your vehicle value with approved credit, according to UBT.
When shopping for an auto loan refinance, you should pay attention to the lender’s terms. Because of the many financing options, the terms can vary considerably and so you should evaluate all options carefully.
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