Auto Re-Fi

Yes, you can refinance your car loan like you’d refinance your mortgage — under certain conditions.

If you’re paying six percent interest or more on your current auto loan, that’s the first condition for which you might consider refinancing the loan to lower your monthly payment.

While I was working in TV news, Bankrate.com‘s Tara Baukus Mello shared some information with me about what you should know if you’re considering auto refinancing:

* If you’re behind on your current loan, most lenders won’t re-finance you, although there may be an exception. State Farm Insurance, for example, offers auto refinancing with no application fees or closing fees, and it also offers free ‘gap insurance’ to clients who are upside down on their current loans.

* You should only consider refinancing your auto loan if your vehicle is less than five years old and it’s worth at least what you owe (notwithstanding the State Farm exception).

* You should consider auto refinancing if you owe more than $7,500.

Since a vehicle is a depreciating asset, you should only refinance an auto loan for the same number of months remaining on your current loan. A home is an appreciating asset, so it’s not uncommon to refinance a mortgage in a way that extends the loan. You wouldn’t want to do that with a car since it’s losing its value over time.

You should also know that if you choose to bail out of your current auto loan, you may face a pre-payment penalty. You will also likely have to pay a small fee to transfer the title to the new loan. Ask your current lender about any pre-payment penalties, then ask your re-fi lender about title transfer fees.

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