When interest rates are low, it's time to bargain hunt for cheaper car loans. Auto loan rates are at a two-year low. At the end of April, a 60-month loan on a new car could be negotiated in the 4.3% range, down from 4.6 percent two years ago. By refinancing with a new car title loan financing company, which then pays off your old loan, you could save money on your monthly car payment.
If you're wondering whether to refinance your auto title loan, various factors should be taken into consideration.
Should I refinance my car title loan?
The improvement in auto title loan rates seems small. You may figure it is not worth the trouble to renegotiate. But the refinancing decision should consider other factors that could further lower the loan rate.
You could negotiate a lower interest-rate if:
- your credit score has improved since you took out the car loan, On a 60-month car loan, the FICO rate ranges from 15.24 percent for a score of 500–589 to 3.60 percent for a score of 720–850.
- you can place a higher deposit on the car.
- you negotiate a shorter auto loan term.
If you are at risk of defaulting on your car title loan, refinancing may be an option to avoid default and protect your credit rating.
How will the new rate be determined?
In addition to your credit rating, the loan APY will be determined by the:
- amount of the principal paid down
- term of the loan
You can improve your credit score and further lower your interest rate by paying down debt and improving your payment history (not making delinquent payments). The length of time in which you have had a credit rating will also affect your score.
Let's take the average auto title loan interest rate of 25 percent a month. Over 60 months, on the average $5,500 title car loan, over the life of the loan, you would pay $4,186 in interest on a monthly payment of $161. Negotiating a 20 percent interest rate, the total interest paid would be reduced by $943 on a monthly payment of $146.
Before you sign for your new loan, read the fine print. Various fees could be charged and, when all tallied, may offset the lower annual percentage yield (APY). They could include processing fees and loan origination fees. Late fees and lien fees could also be charged,
For the lowest rates, shop around. Before you proceed with the refinancing, approach your current auto title loan lender. Inform them of your offer and give them the opportunity to provide a counter offer.
With your monthly savings on your loan payment, you can pay down more principal on your loan, pay it off sooner, and save even more.