Why Should You Refinance Your Car Loan Online?
Refinancing your auto loan online can be a smart way to meet your monthly budget goals, save money, and even improve your credit score. Done right, it’s like earning a free vacation.
Refinancing your auto loan online can save you money by:
lowering your interest rate
extending your loan term
skipping a monthly car payment
or all 3.
To see how this works, meet Amanda.
Amanda owed $26,758 on her auto loan, with an 8% APR and 48 months left to go. Since she took out her car loan, Amanda’s credit has improved (yay!).
Lower Interest Rate: Amanda’s monthly payment drops $25.
By refinancing her car loan, Amanda lowered her APR to 6%. Amanda’s auto dealer could have offered her a 6.5% APR on her original loan, but marked up the loan by 1.5% (without telling Amanda – that’s legal!). Amanda’s hard work to improve her credit saved her another 0.5%. The result? Amanda’s monthly payment dropped by $25 and she saved $1,190 in interest over the life of her loan.
Skip A Payment: Amanda skipped her monthly payment.
The first payment on Amanda’s new loan was not due for 45 days, which is typical for an auto refinance . Skipping that payment allowed Amanda to pay off $500 in credit card debt with a 24% APR.
Extended Loan Term: Amanda’s monthly payment drops $116.
Imagine if instead Amanda had extended her 48 month loan to a 60 month term, with a 7.5% APR thanks to her improved credit. Her monthly payment would have dropped by $116. Even though she would be paying the loan off for longer, her stress levels would decline instantly with a more manageable monthly budget.
Improve your credit score by refinancing your car loan online
Refinancing your car loan online can improve your overall financial health. Here are some ideas:
Pay off credit card debt, part 1: Credit card APRs can easily top 20%, but the average APR for a new car loan is ~5%. You can refinance your car loan and use the savings to pay off credit card debt.
Pay off credit card debt, part 2: Part of your credit score includes how much you’re using the credit available to you, known as “utilization.” If you have a $500 credit card limit and a $450 outstanding balance, you are at 90% “utilization.” Getting your “utilization” down to 30% ($150 in our example), can improve your credit score.
Pay off a collection account. A collections account on your credit report can lower your credit score by 100 points. If you skip a payment by refinancing (like Amanda), you can put that money toward paying off old debts.
