Should You Refinance Your Auto Loan?
By: Brian O'Connell

With all the rage surrounding home mortgage refinancing, the question begs to be asked: “Can I get a good rate deal on my car loan, too?” Increasingly the answer is “yes.” Here’s why, and how you can do it.

When we say "do it," that means taking action now, before rates go up should the economy improve in 2010. Right now, auto rates are pretty reasonable, based on the Weekly Auto Loan Rate Tracker.

You can get a 36-month car loan right now for 6.09%, and a 48-month loan for 6.15%. Some major banks are even going way lower on their auto loan rates. PennFed, for example, offers a 48-month base-rate auto loan at 3.99% right now. Bank of America (Stock Quote: BAC) is right behind, offering a four-year auto loan at a base rate of 4.2%.

Still, even with great auto loan rates, there seems to be doubt in consumers’ minds that refinancing an auto loan is a good idea — akin to buying grocery store fruitcake or purchasing car insurance from a silver-tongued gecko. Sure, you could do it — but why would you want to?

Here’s why. You can save a lot of money. Let’s say you bought a car with a $10,000 loan, over a five-year period, at a loan rate of 7%. That would mean total payments of $11,880.

But if you can even get a 5% interest rate after refinancing, that total payment number drops to $11,322 — a savings of $558.

But there’s a particular class of car consumer who can really make out on an auto refinancing deal — the consumer with poor credit. Those individuals with a credit rating of 600-to-650 found that the only way they could get a car loan was to pay exorbitant loan rates — sometimes even as high as 9% on a new car loan.

Even at 8.5%, refinancing into a five-year auto loan (under the same rate conditions as above) drive your total car payment down from $12,310 to $11,322 — saving almost $1,000 in the deal.

When you do take baby steps toward refinancing, know the following things first:

Don’t bother with an appraisal. Your home might need an appraisal if you refinance, but your car likely won’t.

Get your numbers in order. Contact your auto loan company (or even look at the next bill you get) and find the current interest rate and the amount you have left to pay off your car. Those, along with your credit rating, are the key factors in moving forward with your auto loan refinancing. Typically, the more money you have to repay on your car, the better the deal you can get by refinancing.

Watch for fees. Any time you refinance, you’re apt to run into lender fees. The good news is that most auto loan fees run a few hundred dollars, and you can always negotiate those downward to give the lender your business.

Go online. Shorten the process by hunting for good rate deals online. not only has a good Auto Loan Calculator, the site has a powerful Auto Loan Rate Search Tool that can help you find the best auto refinancing deals.

With rates low as they can go, if you’re ever going to refinance your auto loan, the future really is now.

And now you have a road map on how to go about it.

—For more ways to save, spend, invest and borrow, visit

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