The prices for cars have risen sharply in the last few years. As a result, monthly payments also increased for all vehicle types. Monthly payments for new vehicles are now averaging $563, used vehicles average $397, and leased vehicles hover around $450.
Even though cars are more expensive, there are some options to help pay it off faster and with less interest. One helpful act is to refinance your car loan, which might be the best and simplest option for you. Refinancing can offer you a lower interest rate and give you the option to pay off your loan faster with less interest charges, or extend your loan for a lower payment. If you choose to extend your loan, it could still be cheaper than your current loan if you find a low enough interest rate. Alternatively, extending your loan term can also cost you more if you aren’t looking at the total payback compared to the remainder of your current loan. There are many ways to structure your loan to achieve whatever specific goals you may have, and we will explore them here. Although, when considering this option, you might be wondering, “does refinancing really lower my monthly payments?”
Getting A Lower Auto Payment
Refinancing your car can bring you plenty of savings benefits. For example, if you have a record of recent on-time car payments, then you can usually seek out the option for a lower interest rate. After doing this, the cost of your monthly payments may decrease. You have the ability to restructure the loan for a longer term as well, which is a good way to lower your payment even more than just a lower rate at the same term will give you. The potential downside to refinancing your car or truck for a longer term is that if you push your loan term out too far, you could end up paying more in the long run.
If you are comparing loans, there is a simple formula to calculate your total payback and compare the overall cost of a loan; the total of all of your monthly payments over the length of a loan, makes up the total of all principal and interest paid in the loan. To compare your total payback between 2 loans, multiply the number of months in the loan by the payment amount. You will see in some cases, you can pay less over a longer loan, or more over a shorter loan.
Be mindful that as your monthly payments seem to get lower and more affordable, you might be taking a higher interest rate than you have to. In other words, you might end up paying more in the long run, even though you’re saving money on each monthly auto payment right now. However, refinancing to a lower interest rate can still help save you more money overall; with the right refinancing options, you can not only lower your interest rate, but also extend the length of your term and still pay less in total payback.
Refinancing for a Faster Loan Payoff
If you are not concerned with monthly payments and can afford to pay more, your best bet might be to take a shorter loan term on the auto refinance loan, since typically shorter terms have lower interest rates. By paying more per month on a shorter loan term, at a lower interest rate, you will save the most in finance fees possible. The less time you have the loan, the less you pay in interest, and if you get a lower interest rate in the process, you are compounding your savings potential. The increased payments typically only work for about 10% of the borrowers though, so an overwhelming majority of people looking to refinance their car or truck, are looking to pay less monthly and overall. If you have a trusted loan officer you work with, they can usually explain the specifics of the total payback more in depth, so you can make the right decision for your family’s budget.
Skipping or Deferring a Car Payment
If you’re having temporary trouble with making auto payments, then another option that could work for you is to call your lender and ask about getting a payment deferral. A payment deferral is an option you can choose from when you need to skip a monthly payment. When completing an auto refinance, talk to your lender about skipping payments for the first 30-90 days, helping you put your hard-earned money towards other needs and expenses. They should be willing to work with you and help if they end up getting the money they are owed. However, interest will still accrue from those skipped payments.
Auto Refinance FAQs
What does refinancing mean?
Refinancing is when you apply for a new auto loan to pay off your old auto Loan. Usually, you are taking more favorable terms in an auto refinance, however sometimes people refinance to add or remove someone from a loan.
Does refinancing my car lower the cost of my monthly payments?
Yes. Refinancing your car will end up lowering the cost of your monthly auto payments if you take a lower rate or extend your loan term. Alternatively, you can accept a shorter term to pay the loan off faster, and save even more in interest charges, but your payment can go higher in that shorter term. An analogy a lot of people use is to think of your loan balance like an uncut pizza; if you cut it into 48 slices or 60 slices, it’s the same size pizza, but the more slices you have, the smaller each one is.
What are some other options that will help lower my monthly auto payments?
- Refinance your car with Gravity Lending.
- Talk to your lender about getting a payment deferral. Alternatively, you can trade, sell, or opt for a lease on your car instead.
Explore Your Auto Refinance Options
Everybody goes through rough patches. Cars are a necessity for most people to get to work, buy groceries, and even see their family. Sometimes, it may seem almost impossible to find a way to pay off your auto loan; however, refinancing your car can help you get back on track. It is your money, you are just paying more than you need to your current auto loan lender.
At Gravity Lending, we can help you with refinancing your loan, and our expert loan officers can give you advice on all your other options that could help you in the long run with your auto payments. Take control of your loan, and start saving today. To get started, apply online and tell us what you need. Our expert team can help you get the savings that you deserve.