Should You Refinance Your Auto Loan?

With all the rage surrounding home mortgage refinancing, the question begs to be asked: “Can I get a good rate deal on my car loan, too?” Increasingly the answer is “yes.” Here’s why, and how you can do it.

When we say "do it," that means taking action now, before rates go up should the economy improve in 2010. Right now, auto rates are pretty reasonable, based on the BankingMyWay.com Weekly Auto Loan Rate Tracker.

You can get a 36-month car loan right now for 6.09%, and a 48-month loan for 6.15%. Some major banks are even going way lower on their auto loan rates. PennFed, for example, offers a 48-month base-rate auto loan at 3.99% right now. Bank of America (Stock Quote: BAC) is right behind, offering a four-year auto loan at a base rate of 4.2%.

Still, even with great auto loan rates, there seems to be doubt in consumers’ minds that refinancing an auto loan is a good idea — akin to buying grocery store fruitcake or purchasing car insurance from a silver-tongued gecko. Sure, you could do it — but why would you want to?

Here’s why. You can save a lot of money. Let’s say you bought a car with a $10,000 loan, over a five-year period, at a loan rate of 7%. That would mean total payments of $11,880.

But if you can even get a 5% interest rate after refinancing, that total payment number drops to $11,322 — a savings of $558.

But there’s a particular class of car consumer who can really make out on an auto refinancing deal — the consumer with poor credit. Those individuals with a credit rating of 600-to-650 found that the only way they could get a car loan was to pay exorbitant loan rates — sometimes even as high as 9% on a new car loan.