Refinancing your Car Loan

It’s easy to get overwhelmed by your monthly dues when you’ve signed up for a high rating car loan. The last thing you want is to have to give up your hard-earned car for losses, so your only option seems to be to refinance.

You need to be very careful though, because refinancing schemes are also commercialized. This means that they’re dressed up to sound better than they actually are. Sure, it sounds pretty simple on paper: lower interest rates mean more monthly savings. Think again, though.

What’s not being advertised on the website are closing and other penalty fees which you incur once you decide to refinance. Before going through with the process of refinancing, consider all of these fees, and check them against the monthly savings your hoping to make with the new payment scheme.

You can’t expect to break even right away, but earning back what you’ve spent for refinancing within a year is already a good deal. The average break even point for refinancing is about three years. If the new loan allows you to earn back your losses for a longer period of time, ditch the deal and wait for a new offer.

Refinancing Mortgage Loans

As in most payment schemes refinancing schemes are also dressed up to look like the one golden solution for all your debt problems. After all, it seems only logical that the lower interest rates you have on your tab, the lesser money you will need to pay every month.

Dig deeper

You might be shocked, because refinancing actually costs money. You can’t expect banks to alter your mortgage loans for free. If you had to pay for borrowing fees through your former high interest rates in the past, shifting to a new payment scheme will mean high penalty and closing fees.

Try to look at these figures against your projected monthly savings with the new, lower interest rate. Look at your break even point and gauge if the refinancing expenses are worth it.

Break even period

Ideally, good refinancing deals will allow you to break even within the year. However, this doesn’t happen frequently, does it? A break even period of about three years is more realistic.

If your cost-benefit analysis tells you that breaking even will take more than three years, ditch the deal and look for another payment scheme.

Important

It costs you money to refinance, so as much as possible, try to stick to only one refinancing attempt. Once you think you’ve found a low rating payment scheme that will allow you to break even within 1 to 3 years, take it.

Try not to look at any more refinancing opportunities once you’ve refinanced for the first time. You only end up compounding the cost of your loans when you refinance more than once.