Car Refinancing – Pitfalls to Avoid

Many obtain financing to buy a car, but do so with financing that carries less than optimal interest rates. Refinancing vehicle loans can save consumers hundreds if not thousands of dollars, as long as they know the car-refinancing pitfalls to avoid.

The Problem with Dealership Financing

Interest rates vary for many reasons, which can include where the financing originates, credit history and loan options. For the sake of convenience, many buyers opt to finance an automobile through the dealership. However, car loans under these circumstances may carry interest rates inflated to maximize profits.

Most consumers are not aware of their personal credit ratings. Dealerships obtain this information in order to determine credit risk and adjust interest rates according to the FICO score. Sales personnel and dealerships may offer what appears to be an attractive deal, but they are careful to recoup any losses by adjusting the interest rate.

So if you are caught in one of these loans, you can still come out ahead. By refinancing into a better rate, you’ll realize that great car deal without overpaying in interest. By doing a little online research, you can prepare yourself for a lucrative refinance.

The first thing to do is obtain your personal credit rating, determine the true market value of the vehicle, and check interest rates through various lending institutions. Regardless of the original loan agreement, you should look at refinancing in three parts: the price or equity of the vehicle, the available interest rates, and the loan fees and possible required insurance.

Credit Rating

Besides current economic influences, lenders determine interest rates by information provided by the consumer. For this reason, the first step in refinancing is obtaining your credit score. The higher the credit rating, the better the possibility of obtaining a lower interest rate. Consumers can apply for a credit free credit history report once a year at www.annualcreditreport.com, a site set up and maintained by the three main credit bureaus, Equifax, Experian and TransUnion.

Beware of sites that offer free credit reports, but ask for your credit card info. These sites are actually selling a credit score service, not a free credit report. If consumers do not cancel this membership program within the allotted amount of time, charges begin to accrue.

In most instances, you should be able to view your credit reports instantly. Evaluate the reports carefully, checking for errors. Get any mistakes fixed before you go looking to refinance your car loan.

True Market Value

Regardless of the original purchase price, consumers must check the current market value of the vehicle using Kelly Blue Book, NADA or other recognized vehicle valuation services. This calculation, not the purchase price, determines the value of the car and the amount lenders are willing to offer.

Interest Rates

Whether your opt to refinance at a credit union, local lending institution or through an online banking facility depends on where you find the best possible interest rate. By researching online, you can find local, national and regional averages. Sites like MoneyAisle offer a healthy competition for you to browse, helping you get the best rate possible.

Know that you will be required to continue insuring your car after you refinance, so it’s a good idea to get a few quotes from various sources to make sure you get the best insurance rate. Also, be careful that you know about all fees associated with the loan you choose. Read the fine print, ask questions and get the answers in writing if you are unsure about any of the answers you get. Only when you thorough understand your obligations on the loan should you sign any agreements.

Billeater.com is an online information source, offering tips and less-than-obvious ideas for saving money and slashing costs.

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