Many Americans currently paying off a car loan may realize that their payments are mostly going toward the interest rather than the actual cost of the car. Though many lenders and dealerships will offer car loans, some consumers are more concerned with having a new car than with the terms of their loan. Unfortunately, this is a common problem, but there is a real solution.
One solution is to get an auto loan refinanced in order to get a lower interest rate. This way, consumers put money toward paying off the cost of their vehicle rather than paying toward interest. It is typically better to refinance sooner than later, as the interest on any loan accrues each day – therefore, getting a new loan early on can potentially save quite a bit of money.
Of course, there is one way to prevent paying too much in interest altogether: pay attention to loan terms. If there is both a high interest rate and a long term, this is a tell-tale sign that your loan amount will significantly exceed the value of your vehicle (LTV ratio).
Jill Cornfield, a retirement analyst for Bankrate, notes that “if you are human, have a pet, kids, a house or a place to live, something is going to happen that will cost you money.”
However, our changing economy, demographics, and spending patterns has left many Americans strapped for cash, and more have had to sacrifice proper car maintenance because they just don’t have the funds to pay for it.
AAA recently conducted a study that led to an alarming statistic – 60 percent of Americans don’t have enough savings to cover a $500-$1,000 unexpected expense, such as a brake malfunction or a new radiator.
Instead of worrying about such problems, those in need should consider auto loan refinancing as a way to lower their monthly payment. This would give them extra funds to put towards emergency situations such necessary repairs.
Additionally, purchasing a vehicle service contract, though a potentially higher upfront cost, could save money in the long run because they cover the expensive parts and repairs. This will reduce the potential for a vehicular issue to unwind a person financially.