If you approach vehicle refinancing correctly, you’ll make the right decision. Refinancing an automobile saves money and lowers payments. If you’re underwater, just acquired the car, or have prepayment penalties, don’t refinance.
When should you refinance a car?
When You Should Refinance Your Car Loan
You should refinance your car in some cases, but first, look at your finances and understand the new loan.
Your Credit Score Has Improved
Auto lenders sort applications by credit score tiers. Your credit tier affects your APR and offers. If your credit score has improved since you bought the car, you may qualify for better financing.
You Want To Change The Loan Term
It makes sense to car loan refinancing if you need a lower monthly payment. You could extend your car refinance loan to get a lower payment. Still, extending the length of your loan, known as the loan term, reduces your payment but increases the interest you’ll pay over time. Reducing the term increases your monthly payment while reducing the total interest you pay.
You Have Positive Equity
If your car is worth more than what you owe, refinancing may be cheaper. Contact your lender, figure out how much you owe, and divide it by your car’s value.
You Hate Your Current Lender
Many remortgages because they don’t like their lender. Poor recordkeeping or rude customer service might destroy a lender relationship. If you hate your lender, refinancing may help.
When You Shouldn’t Refinance Your Car Loan?
Here are some situations when it’s unwise to refinance your auto loan.
You Have An Older Car
Refinancing a 10-year-old car may be challenging. Many lenders have age limits for vehicles that can be financed. Consider a personal loan or vehicle trade-in to refinance.
You’re Underwater On Your Loan
When upside down, it’s hard to refinance a car. Finding a loan may not be the wisest move. Higher-than-average interest rates will cost you more over time.
You’ve Only Had The Car For A Little Over Half A Year
You could refinance your automobile as soon as you buy it, but it’s advisable to wait six months to a year to let your credit score heal, develop a payment history, and catch up on depreciation.
Your Loan Has Prepayment Penalties
Most auto lenders don’t issue prepayment charges. If your current auto loan involves prepayment penalties, you’ll need to do some math to evaluate if refinancing is a fair deal after paying the penalty.
Is Refinancing Worth It?
If you’re refinancing and know you’ll save money, do it. Use our auto refinance calculator to determine if refinancing will save you money.
Due to an unexpected financial crisis, many consumers refinance to cut their monthly payments. Finding a balance between urgent financial necessities and long-term financial health is difficult, but if you plan, you can make the correct option for yourself and your family.
If refinancing can enhance your cash flow, do it now. Assuming there are no prepayment penalties, make extra payments on your auto loan once your finances are stable. You’ll save interest by paying off your car loan faster.
Speak To A Credit Counselor
Seek professional advice before refinancing your auto loan. It offers free or low-cost debt and credit counseling and can help you refinance.
Auto loans can’t be included in a debt settlement plan, but it’s still a good idea to go to a credit counselor if you’re having difficulties paying. A nonprofit credit counselor can identify solutions you can’t.