cing” should be familiar to anyone who has
purchased a loan. Simply put, refinancing is the process of
obtaining a loan to pay off an existing loan. Obviously it’s
not quite as simple as it sounds, but understanding that basic
description is enough to begin the process of learning about
refinancing.
One of the best-kept secrets in the finance industry is
refinancing. A great deal of time, trouble, and most
importantly cash can be saved through this method alone. Home
refinancing has been around for a long time now and is used by
many people to save money on their loans and/or reduce their
monthly payments. However, many people still balk at the idea
of car loan refinancing despite being familiar with the
benefits of refinancing a home loan. Those who have a less than
perfect credit rating to back them up, in particular, are likely
to react this way.
What exactly is different about car loan refinancing? In
essence, nothing. At the basic level, car loan refinancing
works the same as refinancing your home. In car loan
refinancing, a new car loan is obtained in order to pay off the
existing car loan. The new loan may have different (typically
better) interest rates, a new lender, or both. Again, as in
home refinancing, this is beneficial since car loan refinancing
can make your monthly car loan payments lesser. Alternately
lower interest rates garnered through car loan refinancing can
be capitalized on to pay off the balance of the current car
loan in a shorter period of time.
Very few people understand the time value of money–that the
longer a loan is paid on, the more money is spent on interest
charges. Take for example a 60-month loan for $16,500 on a new
Honda Accord and assume that the buyer’s credit is poor. The
car dealer manages to get the buyer approved at 21% APR for
that loan, making the monthly payments $446.38. By the end of
the loan term, the buyer will have paid $10,282.83 on interest
charges alone–almost as much as the initial price of the
vehicle (which, of course, is now worth far less than when it
was purchased). Now, if the car loan were refinanced with
another lender at 6% APR after the first few months, the
monthly payment would have been $318.99, allowing the buyer to
save as much as $7,643 on interest charges. If the buyer
refinanced at the lower APR but retained the same monthly
payment, the term of the loan would be shorter and the interest
savings even higher.
Record numbers of homeowners refinanced their homes and saved
thousands of dollars during the years 2001 and 2002. More car
owners are beginning to realize the benefits of car loan
refinancing every day. With the steady drop in interest rates,
car loan refinancing is fast becoming a trend as more and more
people realize how much money can be saved simply by
refinancing a car loan.
About The Author: John Miller writes for several Internet
magazines, including http://cheap-product.com and
http://products-tips.com
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