Refinance Car Loan

The most proactive way for you to reduce your car payment is to refinance the loan before you start to show signs of financial distress. By refinancing the loan, you might be able to get a lower interest rate and/or a longer loan term to further reduce your payments.

If you act quickly, you can take advantage of your credit rating to refinance your car loan. If you act too slowly or wait until you miss a payment, then your credit scores will drop and you may be unable to refinance.

Refinancing your loan can do wonders to lower your car payment. For starters, if you have been current on your car loan so far, it might have improved your credit score enough to justify a lower interest rate on a new loan. That alone can shave dollars off of a car payment.

A more substantial way to lower your car payment is to refinance your current car loan over a greater number of months. This can greatly reduce your monthly car payment.

Consider a car payment of $489 a month for 60 months. Let's say that you are three years into the loan term. The original loan was for $22,000 and you now owe about $10,396.

You could refinance the remainder over 36 months instead of 24. If the interest rate remains the same at 12%, this would drop your car payment to $345 a month. If your credit improved enough to reduce the rate to 6%, then your monthly payment would drop even more to $316. That could save you $173 a month.

Of course, by refinancing a loan for a longer period of time, you will likely increase the cost of financing the car, so you want to be sure that it is necessary to lower your monthly payment. Getting a lower interest rate should be a primary reason for refinancing. Even so, refinancing your car loan to a longer loan term can tremendously lower your monthly payment. That might be important if you are barely getting by.

To refinance your car loan, you need to research the rates for used car loans. If you know your credit scores, then you can determine which lenders will likely approve your car loan application. Community banks and credit unions are usually the best sources for car loans, although some of the big commercial banks offer good rates also.