Auto loans involve payments of interest rates. The interest rate is based on several factors such as the credit score, down payment, and the type of vehicle you buy. Higher interests are placed on loans by bad credit holders since lender view them as high-risk customers. In case your present car financing involves higher interests, you can reduce them using the tips below.
Review the terms and conditions included in your present loan contract. Determine whether there are penalties for prepayments mentioned in the agreement or not. In case there is, try to determine how much it would cost in the event that you pay the loan off early.
Most lenders charge percentage fees based on the amount you currently owe them. For example, the remaining amount of loan left unpaid is about $5,000 and the penalty for prepayment is 1%, you need to pay the $5,000 and the $50 for the penalty. This brings your payoff amount to $5,050.
Look for refinancing loans that could reduce your monthly payments and the interest rate. Knowing the prepayment penalty and the amount still unpaid from the current lender allows you to compare this with the payments involved in the new loan.
Comparing the rates involved in your current financing or car repair loans and the possible refinancing allows the selection of better loan terms. You can use online calculators to determine the payments you need to pay for the first and the second loan. Add up the prepayment penalty into the first loan and determine which of the two allows you to save money.
After comparing both loans, accept the best offer. Do not hesitate to switch lenders when refinancing brings you more savings. Apply for refinancing and as soon as it gets approved, allow the second lender to pay your current loan off. The second lender can also issue a check which you could use to close the previous loan.
By the time the first loan is paid off, you need to pay the monthly payments to the second lender. You also need to inform the auto insurer that handles the car about the present lien holder.
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