Should I Roll My Current Car Loan Into My New One
Thomas J. Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities.
Maybe you need a newer, more reliable car, or perhaps you need a bigger car. For whatever reason, youre considering trading in your current car for a newer onebut you still owe money on your current car. As a result, you may be wondering how to deal with your existing car loan.
It’s common for people to trade in their current car when purchasing a new car, and, if the current car is not yet paid off, the dealer offers to roll the current car loan into the new one.
While many people do this, you should carefully consider your options before taking this route. Consider several factors before rolling your current car loan into a new one because this could significantly increase your payments and the amount you are actually paying for the vehicle.
How To Lower My Car Loan Emi
A new car promises easier daily commutes, more enjoyable weekends and a better lifestyle. But it also means a monthly date with EMIs.;So, what are the best ways to lower your EMIs on your car loan?Competitive ratesThe rate of interest you pay on your loan is one of the factors that influences the amount of EMI you pay. To get the most competitive rates,;check;that you have a good credit history. A bank will check your credit score through a rating agency like CIBIL, before finalising the loan. A good credit score above 750 will get you a better deal.;HDFC Bank offers car loans at highly competitive rates with EMIs starting at as low as Rs 1,234 per lac.Longer tenuresOpting for a longer tenure will automatically bring down your EMI. For example, you will pay an EMI of Rs 2028 for a 5-year loan of Rs 1 lakh at 8% interest. But if you extend the tenure to 7 years, you can bring down the EMI by almost 25% to Rs 1559.HDFC Bank offers flexible tenures of up to 7 years. You can easily calculate your EMI online with our;Car Loan EMI Calculator.
How Can I Pay Off My Car Loan Faster
There are several ways you can work to pay off your car loan more quickly. You can start making payments every two weeks instead of once a month, for example, or increase the amount of principal you’re paying each month. If you get a large tax refund, you can make a one-time payment to lower your balance. Any of these methods will shorten the life of your loan and lower your total interest paid.
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Can You Transfer A Car Loan To Another Car
Whether you need a newer car or a bigger car, you can trade-in your existing vehicle and roll in the current car loan into the new car that you wish to buy. Make sure to negotiate the best possible price, interest rate, and term before you purchase the car. Unfortunately, rolling your existing loan to a new car loan could mean that you will owe more on the loan than the actual value of your car. You can still sell the car in the future, but youre unlikely to recoup your losses.
One of the most common problems among car owners is that they tend to purchase a car that they cant afford. Many of them end up with high monthly car payments, which causes them to struggle with their other financial obligations. So, before you transfer a car loan to another, make sure that you know how much you can afford to pay every month. Avoid making impulse purchases, especially when it involves a significant investment, such as a car purchase.
Mistakes To Avoid When Refinancing Your Auto Loan
Refinancing your car loan doesnt always make financial sense. The main mistake you can make when it comes to refinancing is timing. If any of the following scenarios apply to you, it may be worth it to stick with your current loan.
- Youre far along in your original loans repayment: Through the amortization process, your interest charges gradually decrease over the life of the loan. As a result, a refinance has more potential to save money when youre in the earlier stages of repaying the original loan.
- Your odometer is hitting big numbers: If youre driving an older car with high mileage, you may be out of luck. Most auto lenders have minimum loan amounts and wont find it worthwhile to issue a loan on a car that has significantly depreciated in value.
- Youre upside-down on the original loan: Lenders typically avoid refinancing if the borrower owes more than the cars value .
- Your current loan has a prepayment penalty: Some lenders charge a penalty for paying off your car loan early. Before you refinance your loan, investigate the terms of your existing loan to make sure that there are no prepayment penalties.
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Swapping To A Different Car
Since we now know its not possible to just transfer a car loan to another car, how do people upgrade their vehicles without waiting until the end of their repayment period?
In truth, a lot can happen in the time it takes to pay off a car finance agreement. Your family circumstances might change; your business needs could alter; the number of miles you need to do could be dramatically different.;
With this in mind, dealers and finance companies do make it possible to change vehicles but whether or not its feasible for you will depend on your circumstances.;
Using A Car With Negative Equity As Trade
You can fill in the rest of that ad with the name of just about any car and just about any dealership in the U.S. and the promise will be as empty as your bank account because it promises negative equity.
The ad plays on every station in every market in America and you have to admit its enticing enough to make you stop and think about doing it. Someone else bails you out of a bad loan situation and puts you into a new car with no out-of-pocket expense. Whats not to like about that?
Heres a word of advice from car-buying experts: DONT EVEN CONSIDER IT!
Trading in a car with negative equity to take on another car loan with even more negative equity is like throwing gas on a fire because its the only liquid you had handy. You just increased the chances for a serious financial meltdown and here is an example of why.
Lets say you owe still owe $10,000 on a car that is only worth $5,000. The dealer will pay off the $5,000 difference, but then roll that amount into the loan on your next car. So, if you needed to borrow $20,000 for the new car, the dealer rolls another $5,000 into the loan to cover the cost of paying off your previous loan and now youre borrowing $25,000.
Not only will your monthly payments be higher , but you likely will be paying higher interest on the loan.
And, dont forget, youre going to add more negative equity to your situation when you calculate the 20% depreciation in value the new car will lose when you drive it off the lot.
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Alternatives To Trading In Your Car
Try selling the car yourself first. You may be able to receive more money for your car if you do a private sale. This is not a complicated process, and you can use the money to pay towards any amount leftover on the loan. There are many websites for selling used cars available.
If you will still owe money on the car after you have sold it, you should contact your bank before selling it to inquire about transferring the loan to a personal loan, or work out an arrangement with them.
Once you sell the car, you will transfer the title over to the new owner by filling out the transfer of ownership portion on that is on the back of most vehicle titles.
Reasons To Refinance Your Loan
Some of the most popular reasons to refinance a loan are:
- Securing a new, lower interest rate. If the interest rate on your personal loan, for example, was high at the time you applied for it, you may be paying more than is necessary. In the event interest rates have dropped, you may be able to refinance your loan and take advantage of a lower rate, which will in turn lower your payments and save you money over the term of the loan. Also, by consolidating your debt in this manner you may qualify for an even lower interest rate.
- Paying off your loan faster. This can be a smart move if you’ve recently received a raise, finished paying off other debt, or come into some money. You can refinance your loan and obtain a new payment schedule, which will allow you to pay the loan off quicker which saves you money in interest over the long run.
- Stretching payments out. On the other hand, you may find your finances getting tighter and actually need to reduce your monthly financial obligations. By refinancing the remaining loan, you can lower your monthly payments by selecting a longer term. Bear in mind this will cost you more in interest, but it will reduce the payment each month.;
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What Are The Steps Involved In Transferring A Car Loan
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Finding Financing On Your Own
Most dealerships have partnerships with banks, allowing them to create auto loans at the time of sale. While convenient, there are dealerships who will not have the best loan rates or are predatory with certain age groups or consumers.
and smaller banks often offer better interest rates on car loans. You can contact your credit union or bank to gain pre-approval before you begin car shopping. This gives you a budget to stick to and will relieve some of the hassles of dealing with car salespeople.
Why Would A Car Loan Be Denied After You Signed All Papers
Even if a dealership has preapproved you for a loan, the lender has the final say. Theyll take a closer look at your application and credit profile than the dealership likely did, and they may find a few reasons to deny you a car loan.
- Poor credit or no credit is a common reason for loans to be denied. Take a look at your credit score before going to the dealership so you have a better sense of your credit strength. ExtraCredit shows you 28 of your FICO® scores, including those most commonly looked at by auto lenders.
- Incorrect information on your application may lead lenders to deny your loan. Make sure you fill out your application completely and accurately.
- Too much debt can make lenders nervous. Make sure that you have enough discretionary income to make your new car payments before attempting to apply for a new loan.
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Does My Car Loan Qualify For A Refinance
Auto lenders have rules on which cars are eligible for an auto loan refinance. Most lenders wont refinance a loan for a car with more than 100,000 miles or with a salvage title.
The lender will also assess the cars value before approving a refinance request. If the value is too low, you wont qualify. The lender will calculate the cars loan-to-value ratio, which generally needs to be below 125% to qualify.
Before you apply to refinance your car loan, determine the LTV ratio. To find the cars current value, use sites like Kelley Blue Book, Edmunds and NADAguides. Take the average from all three sites to find a general estimate.
Calculating the LTV is simple. Divide the current loan balance by the cars value: the resulting percentage is the LTV. For example, lets say you have a $9,000 balance on a car worth $11,000. In this case, your LTV ratio would be 82%.
But if the current balance is $15,000 and the car is only worth $10,000, your LTV would be 150%. This is much higher than what most lenders allow, so refinancing is likely impossible.
Concentrating Your Banking Is Smart
Have you drawn down a loan for a home improvement, car or another large purchase from another lender and would like to transfer all your loans to OP? Usually, concentrating your loans is smart and makes it easier for you to manage your finances.;Transferring your loans to a single bank will pay off. You will get a clearer picture of your finances, and managing your loans with a single lender will be easier.;
As the main rule, a single larger loan will be cheaper than several smaller loans. You will only pay the monthly costs, such as loan administration fees, for a single loan. Therefore, it pays to combine small credits into a single loan.;
Example:
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If Your Car Loan Is Not Paid Off There Are A Number Of Steps To Take Before You Can Transfer Your Motor To A New Owner
Drivers cannot transfer their car to someone else until their debt is cleared. Jeffrey E Biteng / The National
Are you planning to sell your car but;it is still financed by;a bank?
Selling a car that is still being paid for can be;quite problematic, as unless the loan amount is fully settled the car is ‘mortgaged’ to the bank and technically still under their ownership.
This means you will not be able to finalise;the sale until you have cleared the car loan. But there are ways around it. Here is a guide to the steps you need to take:
If the loan is paid off: If you have cleared the debt, check with your bank that they have electronically notified the RTA that your loan has been settled. You should also request an official release letter from your bank for your records.
If you are still paying off the loan:
If you afford to clear the balance,;then you;simply follow the steps mentioned above once the payment is made. However, if you cannot pay it off, there are two routes you can take to ensure you can sell your car:
1.;Find;a buyer looking;to purchase your vehicle;through a bank loan, who;is willing to use the same bank the car is currently under loan to. If you manage to find a finance buyer, then you need to:
* As you may have agreed on a selling price that is different to your outstanding loan amount, you must then;ask the bank to use the buyers loan to settle your;balance .
at the Roads and Transport Authority in Dubai or;Tasjeel in Abu Dhabi.
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