Buying a car is one of the most significant purchases in an adult’s life. Unless you’re paying full price, the chances are you’ll have borrowed money from a bank or a credit union to pay for the vehicle.
Cars depreciate over time, and if you’d like to save money, you may be able to undertake a loan refinance.
A few components factor into your monthly car payment, but how do you know when you’re paying too much for your auto loan? Here are some specific tips to properly understand your personal loan term based on your credit.
Refinance for Better Terms
Two-thirds of car loans last for 60 months or five years, and auto loan debts are at an all-time high.
If you’ve noticed that the environment is much more amenable now to car loans and interest rates than when you originally bought your car, you may be eligible for refinancing.
Each lending institution will have different parameters surrounding the refinancing of monthly payments. Much like mortgage rates, with car purchases, you borrow a certain amount and then pay it off with interest.
For some institutions, the remaining loan amount must be within a specific range; the car must have less than a particular mileage and not be more than ten years old. Refinancing is rarely an option if the vehicle isn’t a personal use vehicle, either.
Improve Your Credit Score
One of the ways to have the upper hand when you refinance is to have good credit. This is especially important if you had less-than-stellar credit when you initially borrowed money on the car.
Between the original purchase and when you want to refinance, try and tighten up your bill-paying patterns, so your credit score improves when you come in to refinance. The savings calculated from a lower monthly payment could help you pay off the vehicle in the end.
If you don’t have a credit card, get one, perhaps from the lending institution that provided the products and services necessary to buy the car in the first place. Make sure that you pay off the credit card regularly and pay any outstanding debts, and you should see your credit score slowly climb.
Dealership Funding is Not Your Only Option
Many car owners forget that the dealership is not the only place to get a new auto loan. Credit unions are an exceptional place to refinance your vehicle.
Getting a loan from a credit union has some perks – generally, credit unions have lower interest rates. The only catch is that you have to apply to become a member because instead of a board of investors, a credit union pools the members’ funds together to lend it to other members who need it.
Read the Fine Print
One way that you could suffer from higher car payments is by not reading the fine print in the original contract.
Read and reread your contract, so you’re not surprised by hidden fees like leather or fabric protector, extended warranties, advertising, and vehicle delivery fees.
It is much easier to negotiate your way out of these hidden costs at the outset instead of revisiting them after signing the contract.
Refinance When You Can
If a moment comes along when interest rates have dropped, and your credit score has significantly improved, it may be more budget-friendly to refinance than to ignore the situation.
Over your loan’s life, paying under a lower interest rate or for a shorter period will save you money in the long run.
The Final Word
If you recently have taken out a car loan and wonder if you pay too much each month on your vehicle, you have options.
Reading the fine print, refinancing when terms are better, improving your credit, and choosing a credit union like T.I Credit Union are all tactics that can make a big difference in how much you end up paying for your vehicle.