Simply put, refinancing means replacing your current loan with a new one – ideally with better terms. Refinancing does not reduce your debt, but it can potentially benefit you by lowering your interest rate or monthly payments, or changing other loan terms. So how do you know when is the right time to refinance your auto loans?
“Ask yourself if this makes sense and how I would benefit from refinancing the loan,” said Joe Pendergast, vice president of consumer finance at the Navy Federal Credit Union. “If there are clear benefits, refinancing might be worth it. Take some time to understand the terms of your existing loan, and then research the rates in the market to find out where you could get a better deal. “
Improving your credit rating as your initial car loan can lead to better loan terms such as a lower interest rate and a lower monthly payment. Even if your credit hasn’t improved, you can refinance and extend the term for a lower monthly payment. If you’re struggling to pay your current monthly car payment, refinancing can also help you get back on track. For example, on average, members of the US Federal Navy save more than $700 year when they refinance their car loan with the Navy.
“The caveat is that while you can get a lower monthly payment by extending the term, you may end up paying more interest in the long run. Try not to wipe out the savings generated by extending the new loan too much over the remaining maturity of the existing loan, ”Pendergast said.
Here’s a handy online calculator from Navy Federal to help you figure out how much money you can save with a lower interest rate or monthly payment.
It can also be helpful to take into account that your initial loan may come with an early repayment fee, meaning you pay a penalty if your loan is repaid before the agreement expires. The new lender may also charge an application fee, although lenders such as the Navy Federal do not charge an application fee or prepayment penalty. However, it is advisable to fully understand the current conditions of your loan before deciding to refinance.
Now that you have mastered the basics, let’s talk about what it takes to complete the refinancing process.
Refinancing is as easy as applying for a new car purchase loan. Gather the same basic information about yourself and proof of income, as well as detailed information about your car and current car loan. The Navy allows members to apply by phone 24/7, online at navyfederal.orgvia a mobile app or by visiting a branch. And if approved, they will help you pay off your existing loan and transfer ownership of your vehicle. As an added bonus you can get $ 200 cashback…
Refinancing a car loan under the right circumstances is key. Knowing when refinancing is as important as knowing how. Weighing all the pros and cons and a preliminary estimate can help you make the firm decision that will ultimately benefit you and your finances the most.
The Federal Navy Credit Union is insured by the NCUA at the federal level.
This article is sponsored by Federal Credit Union of the Navy…