Refinancing an auto loan is a lot like pistons firing on an engine. Unless the timing is right, everything will break down. If you're considering a car loan refinance, remember this, and you'll save big bucks as you travel down the financial freeway.

Car enthusiasts tend to place a lot of emphasis on speed. When it comes to refinancing a car loan, however, it's not the car owner who gets to the bank first who wins the race. The person who shows up at just the right time is the one who takes the checkered flag.

An overhaul for your auto loan

The most obvious indicator that you need an auto loan refinance is a dip in interest rates. Shop around at different lenders, and let them know that you're looking for a certain rate. The good loan officers will give you a call if the rates drop to your magic number. Many online services also provide this function.

Not everyone refinances based strictly on rates alone. Some people choose to refinance their car as a method of debt consolidation. They might, for example, roll their credit card debts into their car loan. This might work if you're renting, and your credit cards are at a higher interest rate than a potential car loan. If you're a homeowner, you might want to consider a home equity loan with tax deductible interest.

You can also refinance a car loan if you're planning to keep it long after it's been paid off. Many times, automobile owners refinance simply to boost their cash flow, understanding that they're stretching out their payments a few years.

Keeping your current loan in gear

There are plenty of reasons why you shouldn't refinance your auto loan. The primary reason is that refinancing involves lengthening your repayment term. You may be choosing a refinance because you're experiencing some short-term financial pain, but a refinance could stretch your payments out for years.

If you plan to sell your car in the next year or two, you can't refinance it. That's because you'll have to finish up loan payments, and you won't be able to sell a car if you currently owe money on it.

You'll also want to take a careful look at the interest rates of car loans, especially if your original one was for a new car. Rates on new auto loans tend to be lower, so refinancing will cost you more over the long haul.

Peeling rubber and flying from 0 to 60 in seconds may be a ton of fun when you're behind the wheel, but it doesn't make much sense when it comes to auto loans. It's important to take your time-not rush to a quick decision-when you refinance. Carefully analyze the current rate environment and the age of your car, before you make a move to refinance. You don't need to drag your feet, but you should absolutely proceed with the caution of a yellow light.

Published on February 21, 2008