There are a number of reasons why you might be interested in refinancing your car. Perhaps you’re looking to trim your expenses with a lower monthly payment, save money over the life of the loan with a lower interest rate or find a new lender with terms that better suit your financial goals.
Whatever the reason, the best time to consider a refinance car loan is when you’re in a position to be approved for better auto loan terms. Keep reading to learn more about the right time to refinance your car.
Your loan repayments are in good standing
Paying back your existing debts on time each month will help you remain in good standing with your lender. Most lenders won’t let you refinance if you have a history of late or missed payments. Not paying on time or missing payments completely could also damage your credit score, which is an important factor in being able to refinance your car loan.
If you originally got a loan directly from a car dealer, you could shop around and see if there are better terms available at a bank, credit union or online lender. However, most lenders want you to have your current loan for at least six months before they’ll consider approving you for a refinance. And if you owe less than the minimum amount the new lender wants to lend, often at least $3,000, you likely won’t be approved.
You have a better credit score
If your credit score has improved significantly since you got your existing car loan, it may be a good time to look into refinancing. A higher credit score could help you be approved for better terms from a lender.
You could continue to improve your credit score by paying all your bills on time and keeping your credit card balances low. You should also be careful about your overall credit mix and how many new credit cards you open — applying for too many new credit accounts in a short amount of time can lower your credit score.
You might be able to lower your interest rate
Having a better credit score could help you secure a lower interest rate, especially if auto loan rates were high when you first took out your car loan. If loan rates have dropped, it could be a good time to consider refinancing to save money over the long run.
However, if you’re looking to save money with a lower interest rate, double check the loan terms first — a loan with a longer term could mean you’re paying more interest over time.
Also, look closely at the annual percentage rate (APR), which is the total annual cost of a loan, including interest, fees and other costs. The APR is a more complete picture of what you owe the lender.
You could save money every month
If you’re looking to save money, refinancing your car may be a good way to secure a more affordable monthly payment and put some cash back in your pocket. Just keep in mind that lower monthly payments don’t always translate to lower overall costs. If you extend the length of your repayment term, you could be paying more over the life of the loan than you were before.
Prepayment penalties might be an additional cost you need to consider. Since refinancing your car essentially pays off your original loan with the new loan, it’s possible you may have to pay fees that would cancel out any savings. Check your original loan agreement for the details.
You still have time left on your loan term
If you’re close to paying off your existing loan, it may not make a lot of sense to refinance. Most lenders won’t offer loan terms shorter than 24 months. However, if your remaining term is longer than the lender’s minimum, it could be worthwhile to refinance.
Refinancing your car should benefit you
Carefully weigh the decision to refinance your car before you apply for a new loan. You want to ensure the new loan is better for you than your existing loan. Consider the interest rate and length of the new loan, and make sure the monthly payments and overall costs work for you.
By staying current on your payments and maintaining good credit habits, you could put yourself in a position to get a loan refinance that meets your needs.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of impakter.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
Editor’s Note: The opinions expressed here by the authors are their own, not those of impakter.com — Cover Photo Credit: Pexel
