According to the U.S. Department of Education, we are facing $1.096 trillion in outstanding student loan debt in 2014. This number has doubled since 2007 alone. This just indicates we are in the midst of a student loan crisis. Education has its importance, but the cost is becoming prohibitive for many. It’s a catch-22. You need an education to make money, but you need to make money in order to get an education. This leaves many with only one option, which is to obtain student loans.
On top of student loan debt, borrowers might have vehicle financing they are repaying. Adding student loans on top of auto loans can make it difficult to come up with regular monthly payments. While it is hard to reduce student loan debt, auto loans can be reduced, mainly by refinancing.
Auto Loans Can Be Refinanced
Auto loans are a popular way to purchase a car. There are huge incentives for dealers to get a buyer to finance a vehicle. But, while buying a new car can be great, it just adds to the overall debt level. This is especially true as loan lengths are now being extended past 5 years. Many who finance their vehicle never go back and think how much they are paying. It is a great practice to shop around for rates before you buy, but did you know you can do it after? As with a mortgage, auto loans can also be refinanced. The process is quite simple, and you can shop around for a better rate at any time after your original purchase date.
Refinancing Can Lower Your Monthly Bill
If you are a recent graduate, then most of your debt is probably in student loans. Depending on the school, some loan amounts can reach into the 100’s of thousands. If you have a vehicle which is financed, the overall debt can be unbearable. The only way to get rid of your auto loan is to pay it off. Unfortunately, that takes time and money. If you are fresh out of college and looking for employment, your vehicle is probably a very important asset. Instead of getting rid of your car or selling it, you can look into refinancing to lower your interest rate. This allows you to keep your car, but enjoy lower monthly payments.
Refinance or Pay Off Vehicle with a Personal Loan
As your debt increases, you might be tempted to get rid of your car. This can be harder to do when you have a loan attached to it. You can’t legally sell the car as you don’t own it. It is owned by the bank. You can only transfer car titles when the lien is off the vehicle. Selling your vehicle might not be the best answer anyway. If you need it for work and basic transportation, then it is a valuable asset. If you owe more than you can sell it for, then it will be hard to find the money to pay off the difference. This leaves the option of refinancing or obtaining a personal loan to pay off the car.
While getting a personal loan is an option, it will typically be associated with a higher interest rate. You would have to obtain the loan and then sell the car quickly to stave off future payments. While this is entirely possible, it leaves you with no vehicle while looking for money to purchase another one.
Refinancing your current loan might be the best option. You can keep your car and reduce your monthly payments. It is a win-win situation. The best part about refinancing is that you can compare quotes from multiple companies. You don’t have to just take the dealer’s lending option or go with your local bank. You can shop around for a rate that works for you and will help you in the long run.
There are four things to look for when you are trying to refinance: interest rate, loan term (length), prepayment penalties, and monthly payments. You’ll want to find a loan which will save you money each and every month with a lower interest rate and monthly payment. You’ll also want to make sure you can pay off the loan at any time without penalties. Unlike mortgage refinancing, there are no closing costs involved with refinancing an auto loan. Take the time necessary to read the fine print of your current loan and the new loan. Make sure you fully understand both.
The below auto refinance calculator can help you quickly compare different refinancing options:
Apply for refinancing now to find out how much you can save each month on your auto loan.
About The Author
Grayson Bell is a freelance writer who loves technology, finance, DIY, and Jeeps! When he is not running his business, iMark Interactive, he focuses on doing random home improvement projects and cruising the back roads in his Jeep Wrangler. He runs several personal finance blogs along with assisting other bloggers manage their sites from a technical perspective. You can follow him on Twitter and Google +.
Published in CARCHEX Auto Finance Resources by CARCHEX on November 12, 2014