Should I refinance my auto loan and how do I even do it?

[00:00:00] Ralph Estep, Jr.: So here's our question for today. Is your car payment eating up your budget? Do you ever feel like you're driving down the road to financial ruin? Well, buckle up, because today we're taking a detour to savings town. Stick around to learn if refinancing your auto loan could be the answer to your financial prayers.

[00:00:24] Ralph Estep, Jr.: Yesterday, we unraveled the mystery of social security survivor benefits. If you missed it, don't worry. You can catch up on all of our episodes right at askralph.com. And did you know, we have over 400 past episodes and you can search for them right there on our website. So I encourage you to check it out.

[00:00:49] Ralph Estep, Jr.: Before we get into today's topic, let's hear from one of our listeners. This comes from Larry from Tennessee, and he writes this.

[00:00:57] Ralph Estep, Jr.: "Dear Ralph, I am drowning in my car payments. I bought a new SUV last year when interest rates were sky high and now, I'm regretting it. I've heard about refinancing, but I'm not sure if it's the right thing for me to do or how to even go about doing it. I've always just dealt with the car dealer and don't know how to navigate that outside the dealership. I've heard that sometimes, banks and local credit unions even have better rates, which could save me money each month and save me a ton over the life of the loan. Ralph, I need your help. Can you help me?"

[00:01:29] Ralph Estep, Jr.: Larry, thank you for your question. I'm sure many of our listeners can relate to your situation. Today, we're going to tackle this issue head on. Ouch. Maybe that's not the right phrase to use on speaking about cars, but let's explore whether refinancing your auto loan is the right move for you, Larry.

[00:01:48] Ralph Estep, Jr.: Welcome back faithful listeners to another enlightening episode of The Ask Ralph Show. I'm your host, Ralph, and I'm thrilled you've joined me today as we continue our journey towards financial freedom and spiritual growth. But first let's turn to the good book for some wisdom. In Luke 14:28-30, Jesus says this, "Suppose one of you wants to build a tower. Won't you first sit down and estimate the cost to see if you have enough money to complete it? For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you, saying, 'this person began to build and wasn't able to finish.'" Wow. That's rough. This passage reminds us of the importance of careful financial planning and considering the long-term implications of our financial decisions. Just as we should count the cost before building a tower, we have got to really carefully consider our finances before taking on debt or making changes to our existing loans.

[00:02:51] Ralph Estep, Jr.: Well now, let's get into the meat of today's topic. Should you refinance your auto loan? And if so, how do you do it? Refinancing your auto loan could be a smart financial move in certain situations. I've actually done this several times and when I was in the credit union field, I signed off on a ton of auto loan refinances. It's like trading in your old worn-out tires for a brand-new set. It can truly give your finances a smoother ride. But before we jump into how, let's talk about the why.

[00:03:21] Ralph Estep, Jr.: There are several reasons you might want to consider refinancing your auto loan. Number 1. Lower interest rates. If the interest rates have dropped since you first got your loan, refinancing could help you snag a lower rate and save you money over the life of that loan. I'll tell you that from personal experience, the rates you get in the finance office of the dealership are not always the best. And from my own personal experience, I've saved thousands by refinancing with my local credit union. Let's talk about number 2. And that's improved credit score. If your credit score has gone up since you originally financed your car, you might just qualify for better terms now. If you've made consistent payments for several months, you may very well qualify for a lower rate or even extend the term to reduce your monthly payment. And I want to be careful in recommending increasing the term, but based on your personal situation, it may make sense. Number 3. What if there's been a change in your financial situation? Maybe you've gotten a promotion or paid off other debts, and now you can afford a higher monthly payment to pay off your car faster. You could potentially save thousands of dollars over the life of the loan by even reducing the term by 12 months. I can still remember a day when I was at the credit union, when a member came in and refinanced their car loan. They bought their car at one of those buy here, pay here dealers. And when I looked at the interest rate, they were paying 18% interest on their car loan. Now, honestly, they did have some credit potholes, but I saw their character and I saw their payment history with our credit union. I was able to drop their interest rate down to 12%. I'd saved them over 6% of that other loan. It also dropped their monthly payment and freed up several hundred dollars a month for their budget. I can still remember the day they came in two years later to pay it off early because of the lower rate. It was awesome seeing them experience such financial success. And finally let's move on to number 4. Maybe you're unhappy with your current lender. If your current lender's customer service is as slow as a Sunday driver in the fast lane, refinancing gives you a chance to switch to a better lender. I can't tell you how many times I've refinanced loans from other lenders simply because the lender had just horrible customer service.

[00:05:32] Ralph Estep, Jr.: So let's look at some concrete examples of how refinancing an auto loan can save you money. Let's talk first about that lower interest rate deal. Let's say you have a $25,000 loan at 6% interest for 60 months. Your monthly payment is about $483. If you're able to refinance to a 4% interest rate for the remaining term, your new payment would be $460. Now that's only saving you $23 per month, but it's going to save you $276 a year. And if you've got 5 years left, think about it. It's over a thousand dollars.

[00:06:04] Ralph Estep, Jr.: How about shorter loan terms? Suppose you have $20,000 left on your loan at 5% interest at 48 months remaining. Your monthly payment is $460. If you refinance to a 36-month term at 4% interest, your new payment's going to go up to $590. So it's going to increase your monthly payment, but you'd pay off the loan a year earlier and save about $650 in total interest.

[00:06:28] Ralph Estep, Jr.: Let's talk about longer loan terms to reduce your monthly payments. If you're struggling with payments, extending the term can help. I talked about this a little bit earlier. Let's look at a $30,000 loan at 5% interest for 48 months. You're paying $691 a month. If you were to refinance that to a 60-month term at the same rate, you'd lower your payment of $566. That frees up to $125 a month and you can put right back into your budget.

[00:06:57] Ralph Estep, Jr.: How about that improved credit score we talked about. If your credit has improved significantly, the savings can be substantial. For instance, let's look at a $35,000 loan, moving from a 10% interest rate to a 5% interest rate over 60 months will reduce your payment from $742 a month to $660. That's $82 a month, but here's the big part. Over the life of the loan, that's going to save you $4,920. That's a lot of money.

[00:07:26] Ralph Estep, Jr.: Well, let me share a personal experience. A few years back, I found myself in a similar situation to Larry. I had financed a pickup truck when rates were high, and I was feeling a pinch every month. I did some research, and I crunched the numbers, I decided to refinance. It was like finding an extra $150 in my pocket every month. That extra cash helped me build up my emergency fund faster and gave me peace of mind. And that's really what we want to do. But remember folks. Refinancing isn't always the answer. If you're near the end of your loan term, the savings might not be worth the effort. And if you're underwater on your loan, meaning you owe more than a car's worth, you might have trouble finding a lender willing to refinance it. As I said before, everyone's situation is different. So you have to study your particular options.

[00:08:09] Ralph Estep, Jr.: So now you might ask, how do you go about refinancing your auto loan, Ralph? Well, let's break it down into steps. First thing. Check your credit score. This is like checking your spiritual temperature before heading the church. You want to make sure you're in good standing before applying for a new loan. It makes no sense to do it if you're not. As I've said on many prior shows, you've got to know your credit. And you've got to know what's on your credit report.

[00:08:32] Ralph Estep, Jr.: Let's look at step 2. And that's gather your documents. You're going to need your current loan statement. You're going to need proof of income, proof of insurance. Think we're like packing for a road trip. You want to make sure you have everything you need before you set out on the journey. Most lenders will allow you to apply right from their website. So it shouldn't be that difficult.

[00:08:50] Ralph Estep, Jr.: Let's look at the third step and that's research lenders. This is where you want to look at banks, credit unions, and all kinds of other online lenders. This is the time to compare rates and terms like you're comparing prices at the grocery store. You want to look for the best deal. You can check out lendingtree.com or bankrate.com and I'll put those in the show notes to see what the rates are in your area. Again, like I said, I put those in the show notes.

[00:09:15] Ralph Estep, Jr.: Fourth. Apply for preapproval. It's like dipping your toe in the water before diving in. It gives you an idea of what rates you qualify for without impacting your credit score. Now most lenders will allow you to apply online and see what they can do for you. You just got to be careful about any hard credit pulls, which could reduce your credit score. Now, once you've done that, choose the best offer. Once you've got a few pre-approvals compare them carefully. Look at the interest rate, look at the loan term. Any fees involved. If you'd like another set of eyes, review it. Feel free to schedule a consultation with me and I'll review the choices with you. I'll put a link to my schedule in the show notes. Yes, I can help you save money by reviewing your financing options. It's worth paying for a consultation.

[00:09:59] Ralph Estep, Jr.: Now, the next thing you want to do is complete the application. Once you've chosen a lender, it's time to fill out the full application. This is where you've got to be honest and thorough. Remember, honesty is not just the best policy. It's a biblical principle. There is no reason to cause yourself any problems down the road. So it's important to be completely transparent. And now you're going to move on and close the loan. If you're approved, review all the documents carefully before signing them. Make sure you understand all the terms and conditions. You've got to read the fine print. Let's be honest who really reads it all. But you need to know what you're signing. And finally, start making payments on that new loan and don't forget to cancel any automatic payments on your old loan. You also want to update the lienholder information with your insurance company.

[00:10:45] Ralph Estep, Jr.: Here's a pro tip check to see if you bought a GAP policy when you did the original finance with the dealer. You may be able to get that money back and many lenders offer a new GAP policy at a much lower cost. My friends, you might not know this but something you can indeed negotiate.

[00:10:59] Ralph Estep, Jr.: I know we've covered a lot, but let's recap what we've learned today. Number 1, refinancing your auto loan could potentially lower your interest rate and monthly payments. Number 2, it's worth considering if rates have dropped, your credit is improved, or your financial situation has changed. Number 3, the process involves checking your credit, researching lenders, applying for pre-approval and then completing the full application with the chosen lender. Remember, just as we seek guidance from the Lord in our spiritual lives, it's wise to seek professional advice when making significant financial decisions. That's why I said consider talking to a financial advisor or a trusted mentor before making your final decision. Like I said, you can schedule a consultation with me, and I'll give you the best options moving forward.

[00:11:41] Ralph Estep, Jr.: Before we wrap up, I want to remind you all that the whole point of the Ask Ralph show is to answer your question, just like Larry's question today. So keep them coming. Whether that's wondering about budgeting, maybe you're wondering about investing or how to align your finances with your faith, I'm here to help you. My true passion is helping you achieve financial success and living out your dreams. I do this show to show you how to improve and grow your finances and I absolutely love answering your questions. And now, let's take a quick peek at tomorrow's show. We'll be exploring the topic; how can I see the holy scriptures from fresh eyes? Something I think we all need to take a timeout and look at. It's going to be a spiritual invigorating episode. You don't want to miss it.

[00:12:24] Ralph Estep, Jr.: Well, if you found today's episode helpful, I encourage you to visit our website. It's at askralph.com. Join our community and share this episode with others who might also be struggling with their car payments. And here's some exciting news. When you join our email list, you'll get a free copy of my book. Mastering your finances. That's right folks. This book sells for $10 on Amazon, but you can get it absolutely free just by signing up. Remember this friend, small changes in your financial habits can lead to big results. Whether it's refinancing a loan or finding ways to cut your expenses, every step counts on your journey to financial freedom. So until next time, as I always say, stay financially savvy and God bless you abundantly.