Can you refinance a car loan?

If you're paying a high interest rate on your current vehicle loan, you may be able to save yourself some money. Here's the low-down on what you might be able to do.

It happens to most Americans more often than you probably realize...some financial difficulties creep into our lives and our credit rating suffers. If you've been in this situation and had to get a new car during your economic downturn, it's likely your credit score was low which meant your interest rate was high. If you've worked hard in the past year or two and increased your credit score, you may be able to save yourself some money by refinancing your vehicle loan and getting a lower interest rate.

If you've got an interest rate that's at least 2% higher than the current average rate, give your lender a call. Explain to your lender that your credit score has improved since you took the loan out and that you'd like to refinance your vehicle. They may say no, but that's ok, you still have options.

Pay more every time you make a payment. If your loan doesn't have a pre-payment penalty, giving your bank an extra $10 or more per month can help you pay less interest over the life of your loan. Ask your lender if you can pay extra each month and have that amount apply to your principle balance. What you'll be doing is paying off your loan more quickly and helping yourself avoid paying the full amount of interest over the original loan term.

Even if your lender doesn't allow these options, it won't hurt to ask. If you feel confident that your score has improved and you know you can save money by getting a lower interest rate than you're currently paying, another option is to consider getting a new (or pre-owned) vehicle to replace your current ride. It'll feel great to reward yourself for working hard to improve your score and getting a new ride. Of course you'll have a brand new loan to go along with the new ride, but if you've improved your score you'll benefit from a lower interest rate and enjoy the feeling of having earned a new car!