Car loan refinancing

Car refinancing

You've refinanced your mortgage to below 6%, consolidated your credit card debts onto a Visa card at a competitive 12%, and even reduced the rate you're paying on your student loans.

Can you do anything else to take advantage of today's ridiculously low interest rates? Surprisingly, yes: You may be able to refinance your car loan and save significant dollars, not only on your monthly bills but also over the life of the loan.

The best news: It's much easier, in most cases, than getting a new mortgage. Why? No appraisal process, for one thing. With a car, most lenders rely on values from the Kelley Blue Book, the used-car pricing guide.

Where can you go to refinance an auto loan? The Web, to start. Institutions you might regard as mortgage lenders - PeopleFirst.com, LendingTree, and E-Trade - are also in the car loan business.

Credit unions are also dominant players. One recent survey indicates that auto refinancing has become a significant business for more than two-thirds of them. Bankrate.com has a nifty auto rate search engine that can help you find the best deal in your area. If you belong to a credit union, call them also.

The national average for a four-year new-car loan is about 6% (Bankrate.com). That's about two percentage points lower than it was a year ago. Keep in mind that you are taking out a used-car loan. Rates on those can be higher than on new-car loans; a three-year used-car loan now averages 6.4%. But that may be substantially lower than the rate you currently pay.

Once you have determined that a lower rate is available, it's time to figure out whether you are a good candidate to proceed with a new loan. Here's when you should consider refinancing your car:

* When you didn't shop well in the first place. Even if you bought your car recently, you don't have to wait some special period of time to refinance. Typically, if you purchased a car through a dealer (and didn't get 0% financing or a similar deal), you have come out with a rate in the 8% to 9% range. The lesson here is always to look for a competitive loan before you buy a car.

* When you still owe a sizable amount. Most lenders require a car to be less than five years old and have a minimum balance of $7,500 in order to refinance. Your car is collateral, so many lenders won't underwrite a loan that's not worth the amount you owe on it.

* When your credit has improved. If you bought the car when your credit was blemished and now it's pristine (or if you had little credit history at all), refinancing can mean a significant drop in rates. Say the original 60-month loan was at 11% on a $23,000 car. That would put your monthly payments at around $500. By refinancing at 5.8%, you could save $57 a month, or more than $3,200 over the life of your loan.

* When you're having a cash-flow crunch. As with a mortgage, refinancing your car loan into a longer term as well as a lower rate can substantially lower your monthly payments.