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The Debt Adviser

Refinance a car loan? Yes, if ...

Dear Debt Adviser:
My auto loan is 7.99 pecent. I am 2.5 years into the five-year term. I would like to take advantage of the market's low rates. How can I go about refinancing my auto? I do not see any readily available loan products for this. What type of loan would this be?

Dear Chris:
You are wise to consider refinancing your car loan. At today's prices for automobiles, SUVs and trucks, a car loan can be tens of thousands of dollars. Consumers can save significant amounts of money by paying attention to the details of their vehicle loans.

Chris, what you want is called a refinancing auto loan. Several Web sites offer auto refinance loans. Also check with other lending institutions, such as your bank, credit union or savings and loan.

The main advantages to refinancing auto loans are that they can make your monthly car payments less and your interest rates lower. Consequently, you can pay off your loan faster or reduce your monthly payment. With dropping interest rates, many people are refinancing.

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A general rule of thumb when considering a car loan refinance is if your car loan APR is higher than what is being offered in today's market. Even a 1 percent difference in your current APR can save you money. How long you plan on keeping the vehicle can also enter into your decision. If you are planning on keeping the vehicle for several more years, then refinancing may well be worth it.

You stated that you are currently paying 7.99 percent; the market today offers car loans at lower rates. You can search for current car loans through Bankrate.com's auto loan search engine. Shop thoroughly -- you're switching from a new-car loan to a used-car loan, and used-car loans usually carry a higher percentage rate.

The earlier in a loan a person can refinance, the more money will be saved. Even though you have paid off half off your loan, you should still research what rates are available. However, $7,500 is approximately the lowest limit that most auto refinancing agencies will consider.

When you apply for your new loan, make sure you give the same names with the exact spelling as they appear on your current auto loan. Also provide the 17-digit vehicle identification number. You can find this number on your car dashboard and on your registration papers. This has a lot of numbers, but it has to be accurate.

One other matter. You cannot take out a loan for more than what the vehicle is currently worth. Look up the value of your car to see if it is worth more than what you owe on it.

The only costs associated with refinancing your car loan are the transfer of lien holder fees and state re-registration fees. Also, you need to make sure that your existing loan does not have a prepayment penalty clause.

As with any contractual agreement, read the fine print. You must know the details of your current loan and the one you are considering.

I think you are on track concerning your car loan.

The Debt Adviser, Steve Bucci, is the president of Consumer Credit Counseling Service of Southern New England. Visit CCCS for additional debt advice or click here to ask a debt question.

-- Posted: Dec. 27, 2002

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