You're probably not driving much these days as most of the country is under a "stay-at-home" order, but that doesn't mean your car payments disappear. While the Coronavirus outbreak is wreaking havoc on the U.S. economy, the government is taking measures to stimulate borrowing by lowering the federal interest rate to 0%. How does this impact your existing auto loan? Amid so much uncertainty, refinancing your auto loan may offset the burden of your monthly payment.
Although some automakers and lenders are offering car payment deferments during COVID-19, borrowers who can't take advantage may quickly find themselves in trouble. Refinancing your auto loan can provide relief by giving you lower monthly payments and/or a lower interest rate for longer-term savings. We'll cover the benefits and provide some tips to refinance your car loan the right way.
Refinance for Lower Monthly Payments
If you've lost your source of income, even temporarily, due to the COVID-19 crisis, your car payments can quickly become unmanageable. If you find yourself in this situation, you put yourself at risk for missed payments and even vehicle repossession. Before you miss a payment, you should discuss deferring the payment with your lender, and if this isn't possible, consider refinancing your auto loan.
Refinancing gives you the opportunity to lengthen the terms of your loan to reduce your monthly payments. You should be aware that this solution only benefits you in the short term. You will ultimately pay more in interest over the course of the loan the longer you stretch it.
Refinance for a Lower Interest Rate
After the emergency federal interest rate drop, you may be wondering if you can find a lower interest rate to save on your monthly payments and your overall loan amount. According to Business Insider, auto loans don't follow federal interest rates directly like credit card and home equity lines of credit, but they do tend to follow similar trends. When auto loan rates are lowered, borrowers can shop around for lower interest on auto refinancing.
According to CNBC, the average auto loan rates have stayed low in recent years with the current average at 5.7%. If your credit score falls into the good range or has improved, you may be able to refinance your auto loan at a better rate.
How to Refinance Your Auto Loan the Right Way
The COVID-19 crisis certainly creates a sense of urgency, and it can be tempting to rush into auto refinancing to take advantage of a lower monthly payment as soon as possible. However, it's important to take some time and research your options so you can choose the best lender and new loan terms.
First, gather all the information from your existing car loan including your current rate, monthly payment, and how much time you have left on the loan period. Then, check your credit score to see if your rating has gone up. If so, there is a good chance you'll be able to find a lower interest rate. Explore various refinancing options and get quotes from multiple lenders to find the best interest rate offer and loan terms for your situation.