Lowering your car payment is one of the main reasons many borrowers choose to refinance an auto loan. Here's a look at how you could get a lower monthly payment, and save overall.
Why refinancing can lower your car payment. A lower auto loan payment is one of the only real benefits of refinancing a car loan. This is especially true if you originally took out a bad credit auto loan with a high interest rate. There are two ways to get a lower monthly payment when you refinance, lowering your interest rate, or extending your loan term.
If you choose a longer loan term but don't qualify for a lower interest rate, your car payment may be lower, but you're not saving money over your entire loan. In fact, you may end up owing even more in interest charges, since interest accrues daily on your principal balance. However, a lower interest rate saves you money each month, and in the long run.
How much can refinancing lower your car payment? Imagine you financed around $30,000 for a vehicle with a not-so-great credit score, and qualified for a 13% interest rate. If you still owe $15,000 and have 36 months left to pay your monthly payment is $505.41 each month. There are two ways you could go, lower interest, or longer term.
If you refinance and qualify for a lower interest rate, say 9% APR, your monthly payment drops to $477.00 a month, and you're saving $1,023 in interest charges, due to the lower rate.
If you need your monthly payment to drop but don't qualify for a lower APR you could try to refinance to a longer loan term. If you refinance this loan for 48 months, your car payment drops to $402.41. Without lowering your rate though, you're adding $1,121 in additional interest charges, due to the longer time it takes to repay your loan.
How Auto Credit Express can help. If you need to lower your monthly payment, refinancing could be the way to go. If you've had your current car loan for at least one year, are current on your payments, and have equity in your vehicle you may qualify with the right lender. If you don't know where to start, we want to help. At Auto Credit Express, we want to connect you to a refinancing lender to get you to that lower payment you're looking for. Start the process by filling out our fast, free, auto loan refinancing request form.