GREENSBORO, N.C. — The place you call home is costly. The mortgage or rent is your biggest bill each month. Usually, your second biggest payment is likely your car.
While refinancing a home to save money is common, most folks don't realize you can refinance your car loan too.
“Cash is so critical to so many Americans right now and this is one of those unique products that are at an intersection of consumers don't really know about it but it is hugely impactful and potentially beneficial,” said Jon Salzberg, Credit Karma Auto Team.
Basically, it just replaces your current loan with a new loan from another lender, but with a much lower interest rate.
For example:
Current Loan: $10,000 at 9% interest is a total of $12,455
New Loan: $10,000 at 3.1% interest is a total of $10,811
With the new loan, you save $1,644 and your payment goes from $208 to $180.
"The other thing to watch out for are prepayment penalties. So sometimes the loans that you take out carries a prepayment penalty with it which would make the benefit of refinancing, would mitigate the benefit of refinancing,” said Salzberg.
You can shorten or extend the length of the loan, or keep it the way you have it now. There's no limit as to how many times you can refinance.
But if you're going down that route, you'll need to have made six to 12 months of on-time payments to make it worthwhile.
On average, consumers saved $52 a month by refinancing car loans when they wanted to reduce their payments, according to a TransUnion study of 1.5 million refinanced car loans in 2013 and 2014.
On average, consumers reduced the interest rate by 2.4 percent.
The average monthly payment for an auto loan is between $500 to $525 – meaning some could save roughly 10 percent a month.