Car loan tips − refinance tips and techniques

One of the best kept secrets around for saving money is car loan refinance. However, most people never thought of car loan refinance as an effective way to earn extra cash. So how does a car loan refinance program exactly work? The idea is pretty simple. When you get a car loan refinance program, you pay off your current car loan with another car loan from a different lender that has a lower APR. So basically, refinance a car loan is the same as a home refinance.

Car loan refinance is good for you since refinancing auto loans can lessen your monthly car loan payments. Also, your interest rate drops, allowing you to pay off the balance of your car loan much faster. Today, many car owners are beginning to realize how you can save thousands through car loan refinance, too.

Car loan refinance has become a popular trend, especially with today’s dropping interest rates. It’s like stumbling upon a bankroll you didn’t know you had or finding cash in your clothes while doing laundry. With car loan refinance, you pay lesser monthly payments, allowing you to pay off your loan balance faster. Imagine how much you can save on interest alone if you could pay off your loan in say 12 years instead of 15. You can use the extra money you save to pay off credit card debt or accelerate your car loan payoff.

Car loan refinance can benefit even those with bad credit

Car buyers with bad credit can indeed obtain car loan refinance as a way for them to lower their APRs. But because some dealers dupe them into thinking that they have no choice but to stick with 21-25% APR, they don’t even think of trying.

Let’s say for instance that you borrowed $16,500 for 60 months on your new Honda Accord and let’s assume that you have a less than perfect credit rating or have had no previous credit. Your dealer got you approved at 21% APR for a 60-month car loan. So you start paying off your car loan for a few months but then you decide to get a car loan to refinance with another lender at 6% APR.

Your current monthly payment at 21% APR would be around $446 while your payment for the new car loan refinance at 6% APR would be about $319. The total interest on your current car loan would be around $10, 283 at 21% APR but you can save about $7,643 of that if you get a car loan to refinance with a total interest charge of only $2,639.

Car loan tips − leasing are your biggest hidden expense

The expensive offices of car manufacturers are built from the profits on car loans and leases, not cars.

I wish that more people were educated on how owning new cars can be the biggest destroyer to their net worth. I don’t mind automotive manufacturers earning a lot of profit. I know of one that makes the majority of their money by financing and leasing cars. It just doesn’t have to be your money, all the time.

There is a spectrum of two extremes that you can follow for car ownership. You can hold brand new cars for only a couple of years (buying or leasing), or you can have each vehicle for well over five years (and maybe buy them used in the first place). You can already guess which one is financially healthier, but it will help if you know why.

It is my observation that owning a brand new car for less than four years is the biggest destroyer of anyone’s net worth. I have a lesson plan for you if this is your preference of car ownership. Each year, you should be forced to withdraw the cash equivalent of the amount that your car depreciated over the last year. Then you take that wad of cash, and in front of your parents, spouse, kids, and financial planner – you feed it all into an industrial paper shredder that turns it to dust. It is just a little helpful tip from me to illustrate what you are doing to yourself.

When billionaire Warren Buffett was young, he refused to replace his old Volkswagen for many years even when he had the money to buy a new one. Why? Because over his lifetime, he knew that having $20,000 invested over decades would grow into millions of dollars in net worth to him.

Car owners also shouldn’t hold on to them forever, because there is an inflection point where the longer you hold onto a car, the better it would have been to replace it. How can this be? It occurs when the annual repair costs of the vehicle outpace the drop in the value of a newer car. Let me explain: let’s say that you are driving your 25-year-old-junker and are paying $4,000 a year in repairs to keep it loping along. Now, if instead, you had replaced it with a newer car (maybe still under warranty), and it only dropped $3,000 in value – you’d be $1,000 ahead, happier with a more modern car, and relieved at many fewer trips to the dealership over breakdowns.

It is too foolish for me even to begin addressing the financial damage of leasing a car, or getting an auto loan for more than three years and getting upside down (when you owe more on the vehicle than what it is worth). Just avoid leasing and +4 year loan payment plans because these are the money-makers for the companies on the other side of the transaction.

Taking all this information into account, it is my opinion that the following is the financially optimum car ownership model. Buy a car that is about two years old with less than 20,000 miles, and keep it for at least five years until the repair costs start exceeding $2,500 a year. As a general guide, this will help you avoid the sharp depreciation in the first two years and give you a car under warranty for a while, and then you bail out when the expenses start getting out of control.

Car loan tips − car loan value

When you go for a car loan, you need to know the value of the car loan and what you have just agreed. You should know that your loan has two values. You have an exciting deal, and then you have the actual value. When you put the two together, it’s a lot more than you thought you would pay. Even with smaller payments, in the long run, you end up spending so much because of the interest rates. 

For example, you may buy a car valued at $10,000. Then you finance it for 6% interest. Take your total amount and times that by .06 and you’re getting your interest. Then you should add both titles together, and you will find what you pay. It comes to be $10,600; however, if that doesn’t include all your other fees, you may end up paying about $12,000 for the car. That adds up to be two thousand more than you expected. Did you ever realize that?

When you go for a car loan, you need to look at it based on interest. What is the interest? Can you get a lower rate with someone else? You want to make sure that you get a lower interest rate than you can imagine. You don’t want to pay six percent but go for something like five percent. Rarely, you will ever see interest rates on cars below five percent. Most cars are financed at six, seven, or even eight percent. That’s the average, and many people will purchase a vehicle for what more interest. 

Have you ever had a dealer try to take care of everything? It’s most likely because they don’t want to try to get you the best deal on interest rates but just approved. Most of the time, you don’t realize, but you may end up paying more in interest than you’d like if you allow the dealer to do everything.

It would help if you tried to seek what the going rate for all of the creditors that they deal with and which ones have the lower rates. You may find that they don’t vary much, but you will still want to go with the lowest rates possible. Ask the dealer to list you the going rate for all the creditors and then go home and think about it. You may even want to apply online or search some of the creditors on the net to see if there are lower rates. This is the only way that you can get the best rates for your purchase.

Car loan tips − every car buyer must know

If you want or need a new car, but you don’t have the capital upfront you can consider taking out a loan for the purchase of your vehicle. I’ve taken to many people who have always paid upfront or have kept their car until it falls apart because they either didn’t want to have to pay for something that would depreciate so fast or they thought they didn’t qualify to get a loan. There’s a good chance that paying the monthly rate might be cheaper than continually fixing up the old heap.

There are so many different financial companies that specialize in issuing loans specifically for the purchase of automobiles. Even more conveniently, they’re all pretty well setup online for easy access. This is a blessing in disguise, and fleeting are the days when you had to go to the nearest bank and get denied or take on a massive payment due to the lack of options. With online loans, you have the opportunity to shop around and be much more confident that you’re not getting “taken to the cleaners” on the first stop.

Often, this type of loan for the purchase of a car is known as an “unsecured car loan”, and you can search for specialist companies online that provide them. A good car loan company should be able to give you an instant free quote, and many of these companies will provide between 90% to 100% of the purchase value of the car.

Typically the car loan is repaid over three to eight years – five being the most popular. What’s particularly interesting is that even people with poor credit, bankruptcy, or CCJ (County Court Judgment) are eligible to take out an unsecured car loan. Now going into debt is never a good thing but if you need a car and have to go the loan route then always work within your means.

Understanding what your credit situation before starting your quest for a new car loan, is critical. You should seriously get your credit check done to ensure you know going in what issues you have if any. As stated earlier, an Equifax Credit Report will cost about $15 but is well worth it. You can also try FreeCreditReport.com, but either way, it’s a small price to pay to ensure you know where you stand, especially if you’re planning on going car and loan shopping in person.

As always, it’s good to visit as many car loan online websites as you can – many online websites will offer you a free quote for your car loan, and it’s a good idea to get as many of these as you can before making a final choice. Try to get at least three and even four quotes to compare and ensure you’re getting the best deal out there. Getting quotes usually only takes a few minutes to fill out a form but doesn’t cost a dime, so take advantage of them. The worst thing when buying anything on impulse sees it cheaper right after you’ve paid.