If you want to save money, looking at your auto loan is a good place to start! Just like you can refinance a mortgage, you can also refinance your auto loan with a new lender to help improve the terms for long-term savings.
If you’re not sure whether or not it’s the right time to refinance your auto loan, let’s help you make an informed decision. Here are four reasons why it may be worth refinancing your auto loan:
Reason #1: If Your Interest Rate Is Higher Than It Needs To Be
Interest rates can change over time. So if you happened to get an auto loan during a time when interest rates were higher, it might make sense to refinance when lower interest rates are available.
Even small improvements in interest rates can make a big difference in how much you may save over time. If you are paying a high interest rate on your auto loan each month, refinancing to a lower rate can really help.
Reason #2: If Your Credit Score Has Improved Since You Got Your Car Loan
Sometimes you need a car, even when the timing isn’t perfect. Maybe you settled for an auto loan when your credit score was lower because you needed the car right away.
When your credit score is lower or you don’t have established credit history, you might end up with a higher interest rate on your auto loan. Even as you raise your credit score over time, you’re still paying those higher interest rates each month.
If that’s what happened to you, refinancing could be a good option. Now that your credit score is better, you may have better access to better auto loan options if you refinance.
Reason #3: If You Need to Reduce Your Monthly Payments
Another reason that you might want to consider an auto loan refinance is if you need to lower your monthly auto payment. Perhaps you’ve had a personal setback or a family emergency that has changed your financial situation, making it difficult to continue paying high auto loan payments each month.
Since higher interest rates lead to higher payments, an auto loan refinance could help you reduce those monthly payments so you can focus on getting through your setback without extra stress.
Keep in mind that if you are looking to lower your monthly payments, you may need to extend the loan by several years. And applying for auto loan refinance does not guarantee that you will be approved. You will still need to meet the qualifying criteria of the lender.
Reason #4: If You Want a Better Lender
Obviously saving money is the most frequent reason why people refinance their auto loans. But aside from saving money, you might want the additional benefit of moving to a better lender.
When you finance a car at a dealership, you may end up with a lender who you aren’t too familiar with. Once you have the loan, you may realize that your lender isn’t very responsive or that their payment system leaves a lot to be desired.
If you decide to refinance your auto loan, you can end up with a better rate and a lender who you trust. Since you’ll still need to pay off the car under the new refinance terms, it can make life a lot easier when you find a lender who puts your needs first.
What to Know Before You Refinance an Auto Loan
There are two things that you should look up before you refinance an auto loan. First, how much is the payoff amount of your current loan? Second, what is the Kelley Blue Book value of the car?
If your loan is upside down, meaning you owe more than the car is worth, it could impact your chances of being approved for a lower interest rate.
Lenders also may have additional refinance guidelines, like limits on the age of the vehicle or minimum and maximum finance amounts that they will consider. Talk to the lender and find out the details of their auto refinance programs.