When opportunity knocks, we should listen. In times of economic challenge, those solutions designed to rescue and support the wider economy often include efforts to create financial relief and opportunities for individuals and families.
Debt consolidation and auto loan refinancing are two examples of time-limited opportunities for those seeking to restructure their obligations to lower monthly payments and reduce long term debt. What does that mean in practical terms? When rates drop, it’s a smart move to pick up the phone and consult a competitive and trusted financial institution to explore all available options.
Debt consolidation, the process by which one loan with attractive options is taken to pay off several others, can assist those carrying credit card and other debt by concentrating various debt payments into one monthly bill with a lower interest rate. With a good credit rating and a recommended debt load that doesn’t exceed half or more of a household’s income, debt consolidation may be a good option for many.
Consider the following hypothetical example of Michael, a casino worker in Española, New Mexico:
Michael is looking for a solution to high-interest credit card debt. He currently makes a $400 a month payment on a $13,000 balance on his first credit card with an interest rate (APR) of 19.99%. He makes a $250 a month payment on a second credit card balance of $9000 with an interest rate (APR) of 24.99%.
Michael discovers that his good credit score of 690 makes him eligible to consolidate this debt into a refinanced loan at an interest rate (APR) of 16%. Opting for a five year payment timeline, Michael lowers his monthly payment total from $650 to $535 and will save $2,350 over the life of his new loan.
It’s important that debt consolidation plans reflect an ability to make the necessary monthly payments as well as prevent a run-up of burdensome debt in the future. If a person’s total debt is greater than half or more of anticipated income or if a similar accumulation of excessive debt is likely to occur again, debt consolidation may not be the best option. In these cases, seeking debt relief from creditors may lead to better results.
And while getting debt management efforts ramped up, it’s time to also take a closer look at the true cost of that vehicle in the driveway. Auto loan refinancing is sometimes neglected in favor of big ticket items such as mortgages but savvy consumers can be pleasantly surprised at the relief that a refinanced auto loan can deliver.
Take another hypothetical experience of Christopher, a physician’s assistant in Santa Fe, New Mexico:
Christopher would like to lower his monthly car payment but is concerned that it will end up costing him more in the long run. He discovers that a recent improvement in his credit score makes him eligible to finance his auto loan from an interest rate of 8.5% to 4.5%.
With $18,000 left on his car loan, he chooses to extend the life of his loan from four to five years and lowers his monthly payment from $500 to $335.57. He also learns that he will save $3,865.54 over the life of his loan.
Auto loan refinancing doesn’t necessarily require a lower interest rate in order to make sense. Even in cases where a lower interest rate is not available, several strategies exist depending upon a car owner’s goals:
- To pay less for a vehicle loan and own the vehicle sooner, shorten the length of the loan and make a higher monthly payment.
- To free up funds for other monthly financial needs, consider extending the term of the loan to lower the monthly payment.
It’s important to remember that depreciation is an unavoidable reality of owning a vehicle and that extending the life of a loan may result in the owner eventually owing more than the vehicle’s worth.
So what’s the first step to opening the door when opportunity is knocking? Carefully consider your own circumstances, choose your financial goals and consult with a trusted and reliable financial institution.
Del Norte Credit Union is committed to a mission of improving lives with competitive offers, 24/7 customer support and exclusive services for its members including loan and refinance consultations.
Click here or call (877) 818-DNCU today to refinance your auto loan with DNCU