The advertisements come in the mail practically every week, sometimes daily. Maybe you’ve conditioned yourself to immediately drop them into the shredder and move on with life because so many of them say that you could save hundreds on your mortgage payments, but what if one of them said that you could save money on your car payment? How would that sound to you?


While refinancing homes is a much more lucrative business for banks, many of the same banks and even credit card companies which offers mortgage refinance also offer auto refinancing. While this might seem strange, it is becoming more and more prevalent as auto loans begin to have longer and longer payment terms and the value of vehicles increase. Where once a 60 month loan was considered long term, there are now auto loans which extend the payments for as long as 84 months, a seven year repayment term!


So, should you refinance?


One way to know that you should refinance is if your vehicle is at least three years into your repayment term, and your credit score has significantly increased since you bought the car. This might be the case if you paid off a student loan or two, or paid off a credit card. Auto loan interest rates tend to be higher for consumers with a high average debt load, while the rates are typically lower for consumers who don’t carry as much debt. This presents you with a great opportunity to cut your auto loan interest rate significantly.


What if you’ve still got a heavy debt load?


If you still carry a lot of debt, then the refinance process is a bit trickier, but still might be obtainable if you’ve been diligent about paying your loans and bills on time. A consistent track record of on-time payments can have just as much a positive impact on your credit score, and thus your ability to obtain favorable refinancing terms, as paying off old debt. In some cases, it can be an even better indicator of your credit worthiness. This tells lenders that you care about your credit score and are responsible enough to meet your obligations, which makes you a good risk in the eyes of the lender.

If you’ve missed payments, however, you should be prepared for a shock. Because of the nature of auto loans, even a few late or missed payments can cause you to be turned down for refinancing loans or even cause you to qualify for loans which have a higher interest rate than the loan you’re trying to refinance.


So when should you consider a refinance based on your current finances


For that question, I’ll defer to someone who knows a lot more about money management than me.

The last word


Auto loan refinance is a great idea for some consumers, but can be tricky to handle if not downright impossible for consumers with less than perfect credit. Check with your banker before you completely rule out the possibility, however. After all, if you don’t try, you can never succeed.