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 Learning about the auto refinance loan process
  Determining if auto refinancing is worth the effort
By the EchoBay Loans Expert
 Learning about the auto refinance loan process
Dear EchoBay Expert: My current car loan interest rate is 9.75% and I owe $14,000. I'm thinking of applying for an online auto refinance loan or a loan at my credit union, but haven't done it yet because I'm not sure if I have the time to do it. What is involved in the auto refinancing process?

Dear Loyal Reader: The auto refinancing process is actually fairly simple. First, you need to know what the payoff is on your current loan. You can easily obtain this information with a phone call to your lender. On a refinance auto loan, lenders will not lend more than the payoff.

You need to be sure that your loan amount falls within guidelines as well. It is usually a minimum of $5,000 and a maximum of $100,000 but it varies by lender. For instance, in Arizona, the minimum amount is $10,000.01.

Next you can search for rates online or call your bank or credit union. It can be much easier to compare rates online as you can search many lenders in a matter of minutes. After you have found the best lender for your situation, you will need to fill out an application. If you found an online lender to refinance your car, you can usually complete the application online in less than five minutes.

It will be more time consuming if you go through your local bank or credit union as you will have to actually go to their place of business to fill out the application. If your application is approved, the new lender will contact your existing lender to get an exact payoff amount for your loan.

The new lender will also forward several documents to you for your signature. Usually the only fee associated with an auto refinance loan is a state mandated lien holder change fee. This can range anywhere from $5 to $65 depending on where you live.

After the documents are signed and you have returned them to your lender along with the fee, the new lender will payoff your existing loan. At this point, you are the proud owner of a refinanced auto loan!

 Determining if auto refinancing is worth the effort
Dear EchoBay Expert: I'd like to figure out if refinancing my car loan will save me money or cost me more in interest payments over the next few years vs. my current auto loan. What are the general guidelines for deciding if auto refinancing is worthwhile?

Dear Loyal Reader: There are several issues to consider when you are trying to figure out if auto refinancing is best for you. If you plan to increase the term of your loan or refinance again for your original term, you could be looking at paying a great deal more in interest even if you are refinancing for a lower rate.

Many try to lower their payments this way but if possible, you should keep your payments the same and refinance for a shorter term with a lower interest rate. This will ensure you save money.

Second, how close are you to paying off your loan? With auto loans, the majority of the interest is paid in the beginning of the loans. Once you pass the half-way point on your loan, you should give some thought as to whether the savings is significant enough to refinance.

Third, can you refinance your car for a lower interest rate? Interest rates on used car loans are generally higher than new car loans. It is possible that you would increase your interest rate when you refinance simply because the car is now considered used.

Fourth, how is your credit now compared to when you took out your original loan? If your credit has significantly improved, it could be worth your while to investigate auto refinancing. An improved credit rating could lower your interest rate significantly. Rather than a traditional auto refinance loan, if you are a homeowner, you may want to consider a home equity loan.

This can offer you a low interest rate as well as the ability to write off the interest paid on your taxes. The final consideration is if your loan is a simple interest loan or a pre-computed loan. It is not always beneficial to pay off a pre-computed loan because you pay significant amounts of interest early in the loan term.

If your lender is applying the Rule of 78s, it could add up to even more interest that is paid. If you financed through a traditional lender, it is likely that you have a simple interest loan. However, finance companies do favor pre-computed loans as they are able to collect a majority of the interest very early in the loan term.

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