When you purchase your new car, car dealers often try to talk you into getting a car finance loan with their in-house financing department. It is often easier and less restrictive to get a loan with dealers than with banks, but the down side is that these car finance loans often come at higher interest rates.
If you decide to use your dealer's car finance loan, do make sure to negotiate for a lower interest rate. There should be some negotiation room as dealerships usually have several loan sources, each with its own interest rate level, such as the manufacturer's credit company or the local bank. You should also investigate other sources, such as your bank or credit union.
You should seriously consider a car loan refinancing if you initially did not get 0% to 3% APR from the dealer or the bank. By refinancing your car loan, your current loan is paid off with the new loan coming from a different lender at a lower interest rate. You can now save more money with the lower monthly car loan payments thanks to the lower interest rates. You will also be able to accelerate your car loan payoff in a shorter period of time.
It makes more sense to refinance your loan earlier as the interest is usually paid in the earlier payments. The earlier you apply, the more money you can save. However, if you refinance after the fourth year your savings will not be as much and thus not worthwhile.
When shopping for different refinance car loan packages, make sure to evaluate them not just on the interest rates offered. Compare also other fees related to the loan, prepayment penalties, and the terms for the conversion options. You should also find out the lock-in period for the different loan packages. The lock-in period is the period in which the interest rate quoted to you is guaranteed, and ranges from 30, 45 to 60 days. The longer the lock-in period, the higher the price of the refinance loan.
With your savings from refinancing, you need to put it to good use. If you continue to make the same payment amount, you will be able to reduce the principle owed much quicker. If you lower the monthly payment to the new required amount, you won't be paying it off sooner, but at least you will be paying less.
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