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CME CU Blog
Auto Refinance
If you have a car loan, you’ve probably heard about refinancing. However, you might not be aware of the benefits or what to consider when deciding to refinance. You also might not know how to refinance your auto loan. We’ve gathered all the information you need to go about refinancing an auto loan.
- Decide why you want to refinance
Refinancing can save you money on your car loan. However, whether or not it is right for you depends on your current situation.
First, what is the current state of auto loan rates? You can locate this information by doing a brief internet search for current loan rates. Then compare what you find to your existing auto loan. You can also use services to alert you when interest rates have dropped.
To determine if refinancing is a good idea, think about what you want to get out of refinancing. If your current monthly payments are too high and you need to lower them, refinancing to a longer term, even if the APR hasn’t gone down, can accomplish this.
If you want to save money overall on your loan, you should be targeting lower-APR loans without changing the length of your loan term.
- Be familiar with the status, terms, and conditions of your current loan
Before you refinance, you’ll want to look at your current loan and familiarize yourself with the terms and conditions. Some loans have prepayment penalties, which might negate any benefits of refinancing.
Refinancing saves you the most money towards the beginning and middle of your car loan. Refinancing also often comes with some fees, and if you’re near the end of your car loan, you may not recoup these costs before you’ve paid off your loan.
Car loan payments are structured so that interest decreases toward the end of your loan. This is another reason why you may not save money by refinancing at this point.
If you’re near the beginning or middle of your car loan and the prepayment penalty is minimal or zero, you’re ready to start the process of shopping. To move forward, you’ll want to know how much you owe on the car, what your current APR is, and how much the vehicle is currently worth.
- Know your credit score
It’s always a good idea to be aware of what your credit score is and what direction it’s heading. Doing this is particularly true when you’re trying to refinance. Interest rates may have dropped, but if your credit score has also dropped, you may find yourself unable to get a better deal on your auto loan.
If your credit has significantly improved, though, you may have access to a much better APR than when you took out your original loan.
Knowing your credit score means that you can chat with financial institutions to discuss what kind of APR you can get. This process will help you know where to look and whether you’re getting a good deal or a bad one.
- Shop for refinancing loans
The best way to save money on your auto loan, whether you’re refinancing or not, is to shop around. Compare your prospects at different financial institutions, banks, and credit unions, and keep track of what you find. Keep a spreadsheet of the loan amount, refinance costs, and the APR to narrow down your choices.
- Gather your information and apply for preapproval
In addition to information about your current loan, you’ll need the following documents:- Identification- usually social security card/number, driver’s license, or passport.
- Income information- including tax returns and recent pay stubs.
- Car information- including the current value, mileage, and registration.
While you’ll need all of this information to get officially approved for a loan, you can sometimes get preapproved through a more straightforward process. Preapproval happens when a lender looks at your finances and determines that you will be approved for a specific loan if you wish to take it out. Preapproval is a great way to confirm the APR you can get and gain access to some bargaining power.
- Use a loan calculator to decide on the best deal
Once you’ve compiled your information, decide on your top choices for loans. Then apply for preapproval so you can compare your options. Determining which auto loan will save you the most money can be difficult, especially when comparing different APRs and terms. Using an auto loan calculator is the best way to standardize this.
You’ll find auto loan calculators on our website to help you compare and contrast potential loans and decide on refinancing.
Ways to pay off credit cards
Credit cards can be a great tool to help you make the purchases you need and build your credit. If you’re not careful, though, you can fall into a hole of credit card debt. This can have major consequences for your credit score and financial health.
If you’ve accumulated some credit card debt, the best thing to do is to start paying it off as soon as you can.
Credit cards have high-interest rates, and with most cards, the interest is compounding. This means that every day you accumulate interest, this interest is added to your total due. The new total due is what is used to calculate the interest for the next day.
Following are six ways to pay off credit card debt.
- Take account of your debt
The first step to resolving your debt is to take account of everything you owe. Knowing how much credit card debt you have and how it is spread across cards is important to formulating a solid plan to pay it off.
Head online and compile a spreadsheet containing the card’s name, the amount of debt, and the interest rate on that card. If you have multiple cards, this step can take a bit of time. But it’s crucial to get the full picture of your debt.
- Stop using your credit cards
If you can, stop using your credit cards completely. The worst feeling is to start to pay off your debt but feel like you’re going nowhere because you’ve racked up new purchases on a credit card.
You need to be honest with yourself and what you can afford to spend each month. Only buying what you have money for in your bank account is a necessary step to ridding yourself of debt.
In addition to avoiding using credit cards, avoiding all plastic can help. It’s a wise idea to try to spend your budget in cash. Reserve your debit card and transfers for rent/mortgage, utilities, and other bills. Withdrawing your free-spending money in cash can help you save money by making you more aware of how much you’re spending.
- Re-evaluate your monthly budget
Take a look at all of your expenses. How much are you spending on all of your necessities? Are there areas you can cut down?
A good way to track how much you are spending is with a spreadsheet or a budgeting app. Budgeting apps can show you where your money is going and having to enter each purchase into a log can be enough to ward off unnecessary purchases.
Be honest about how much money you can free up. For example, if you know that cutting out all take-out and delivery expenses means that you’ll go without eating at work when you forget your lunch, it may be wise to leave a small budget for this.
The more you can be honest and plan, the more successful your plan will be to pay off credit card debt.
- Make a plan
If you have multiple cards, there are two primary approaches to paying off credit card debt.
Option one is to pay down your highest interest rate card first. Option two is to pay off your card with the lowest debt amount. Both strategies require you to pay the monthly minimum on all cards in addition to putting more money toward the card of choice.
The first method is called the debt avalanche method. This saves you money on interest by first eliminating the card with the highest interest rate.
The second method is called the debt snowball method. This method can help you see progress quicker as you eliminate smaller debts. It allows you to build motivation as you see the effect of your efforts.
Just pick a plan, and get started.
- Always pay the monthly minimum
No matter what your strategy, always be sure to pay the monthly minimum on all cards. This will help you avoid racking up more fees on late payments that contribute to your debt.
Only paying the monthly minimum, though, means you will spend a long time paying off the debt.
That’s why it’s so important to follow your plan and continue contributing more money to at least one of your cards each month.
- Consolidate your debt
If you have multiple credit cards with accrued debt or cards with extremely high-interest rates, it can be a good idea to consolidate your debt to reduce your interest rates.
The two main avenues to do this are with a balance transfer to a new credit card with lower interest or with a personal loan.
A personal loan can be a useful tool. You can take out a personal loan for the total amount of your credit card debt and use it to pay off your credit cards. Oftentimes personal loans have lower interest rates than credit cards. Once your loan is financed, you’ll know exactly how long the term is and the monthly payment you need to make to achieve freedom from debt.
Many credit card companies also allow balance transfers to new credit cards. Often, there are promotional deals where you can pay off your debt with a low APR for the first six months, and sometimes even up to two years. This can be a great solution to help you pay off your credit card with almost no accumulating interest for some time.