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Estimating Costs of Refinancing an Auto Loan

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Refinancing an auto loan is a great way to adjust your financial situation to suit new circumstances. If you took out your loan during a time when your credit rating was lower than it currently is, or if your financial situation has otherwise changed since the original loan, refinancing can be an easy way to lower your monthly payments or your interest rate (or both) and save yourself some money, both in the short and long term.

Costs of Refinancing an Auto Loan

The question for many is how to crunch these numbers, and how to figure out exactly what to expect after a car loan refinancing. It’s important to estimate your budget and try and calculate how the refinancing will affect your finances before you sign on the dotted line.

The key to making such estimations is to consider all the factors that will affect your refinancing and the terms of your loan. In other words, as you move forward with your estimation, consider not just how your credit report has changed (and what that might do for your interest rate). Also consider how the market itself has changed. If, for example, you took out your original loan during a time when the market was fairly slow, you might have gotten lucky with a lender who was in need of business. Many banks and unions offer better interest rates to customers (even those with poor credit) during times of slow business, because they need to continue signing loan contracts, so they’re willing to sweeten the deal. Keep in mind that even if your score has improved since that time, if the market has changed significantly in the lenders’ favor, you might not get such a great rate the second time around.

The other major factors to consider as you make your estimations are your monthly income versus monthly costs, and how those numbers have changed since the original loan. New employment, loss of employment, debts paid off, new debts taken on, and changes in your life circumstances will all affect the money coming into and going out of your household. These numbers should be taken into account as you consider how a refinancing of your auto loan will affect you financially.

Your best bet may be to speak with some lenders and get some quotes: find out what rates you might be eligible to receive should you go through with a refinancing. Get quotes from a few different lenders that you’re interested in using, and based on those quotes, work out a monthly budget for yourself. If the numbers add up in your favor, and you’ve been careful and honest with your calculations, chances are good that the refinancing would be a success. If things aren’t quite coming out as they should – if you’re seeing higher interest rates on the loan, or if you find the new monthly payments stretching your budget – it may be best to wait six months and live with your current loan until you’re in a better position to try again.

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