For Some, Refinancing Makes Sense

For most consumers, refinancing an auto loan is not a top priority - especially in today’s rising-interest-rate environment. However, a large number of consumers with high-interest auto loans are missing an opportunity to save hundreds, or even thousands, of dollars over the remaining life of the loan. While refinancing an auto loan does not make sense for all, for some, refinancing that loan makes all the sense in the world.

High Interest Rate Loans Make the Loan More Affordable

Consumers may have a high-interest loan on a vehicle for many reasons, including bad credit or an unfavorable loan environment. However, the high-interest loan they’re unhappy with can be refinanced at a lower rate. Most important, a vehicle refinance can lower your loan payment without incurring a trunk-load of fees; there are no application fees, no down payments and no closing costs. Vehicle refinancing carries the most benefit when a simple-interest loan with no prepayment penalties is refinanced into a simple-interest loan with a lower rate.

If you’re one of many consumers who got tied into a high-interest loan at the time of your purchase, it’s time to take action and save some money.

Here are examples of how vehicle refinancing works with a high interest loan. Let’s say you bought a new car last year and financed $30,000 for five years at 14.99 percent APR - it would result in a monthly payment of $714. If, after one year, you refinance at 9.99 percent, your payment would drop to $650 a month, a savings of more than $3,037 over the life of your loan. Even refinancing a $16,000 loan after one year - dropping from a 14.99 percent APR to a 9.99 percent APR - would save $1,620 over the life of your loan. The bottom line? If you find an interest rate that’s lower than your current interest rate, you’re going to save money by refinancing.

Want to save even more money and pay off the loan early? After refinancing to reduce the payment, send in what you’ve been paying all along. By reducing the principal much more quickly, you multiply the benefits of refinancing.

The Online Advantage

Refinancing a car can be a simple, moneysaving process - even more so for consumers going online for their deal. According to Forrester Research, two-thirds of those who have applied for auto loans online say it’s more convenient than on the phone or in person. Plus, the savings online can be significant.

AAA offers some of the lowest rate vehicle loans available. To apply or check today’s rates, simply visit AAA.com/autoloan.

When Should You Refinance?

Here are a few benefits of refinancing an existing auto loan:

• Get a Better Interest Rate With Improved Credit. The interest rate you started with may have been the only choice you had, but now you may qualify for a better rate. Refinancing is worth looking into, even if you recently purchased your vehicle at the dealership and can only get the rate down one or two percentage points.
• Free-Up More Cash. If you need more money at the end of the month, refinancing your existing auto loan could be a great way to free-up some extra cash. By extending your original loan term, you can lower your monthly payment and stretch your monthly budget.
• Keep the Car You Lease. If you leased your car as an alternative to financing, you may want to consider buying out your lease at the end of your contract. You can refinance the residual value and keep the car you’ve grown accustomed to.