Buying a car can take days of research and pounds of paperwork, but it's worth it to have a new (or new-to-you) car.
Soon, your auto payments go on autopilot, and you never have to think about them again.
But maybe you should.
Refinancing your car to a shorter term can allow you to pay off your loan quicker and save you money in the long run. Or, refinancing to a longer term can lower your monthly payment, which gives you more money in your pocket each month for expenses. In either scenario, refinancing to a lower interest rate makes the savings even greater. Here's how it works.
Option 1: Save money by paying off your car loan sooner
If your budget allows, you can shave months off your car payment and save money in the long run by refinancing it to a shorter term. For example, you can refinance your 48-month loan with a 36-month loan.
With this option, you will pay off the loan much earlier – and likely lower the amount of interest you pay. Once you make your last car payment, you'll have more money in your pocket for paying off other bills or building your savings.
Option 2: Create more cash in your monthly budget
Another approach is to refinance your auto loan so you pay less each month. With this method, you would refinance at a lower interest rate at the same term or a longer term.
You can use the extra cash each month to pay off credit cards with higher interest rates or for other expenses.
Use this payment example to find out more about how both options work.
Let's say you financed your car with a $15,000 auto loan at 7% APR for 48 months. Your monthly payment would be $359, and your total cost of the loan would be $17,241. If you chose to refinance your car 2 months into your loan at a lower rate like 3.40% for 60 months or 3.15% for 36 months, the term you choose for your refinance could either A) lower your monthly payment, or B) lower the overall cost of your loan: