It can be difficult to decide if or when you should refinance your car. But if you approach the situation correctly and ask the right questions, you will be able to make the right decision. Refinance your car when you can save money or get a lower monthly payment. If you are underwater on your existing loan, have recently purchased the car, or have prepayment penalties, you should not refinance.
Refinance Your Car Loan
Refinance your vehicle is an option in certain situations. However, you need to first examine your financial situation and ensure you fully understand the terms of the loan. These are the situations where you should refinance a car loan.
You Have A Better Credit Score
Credit scores are very important for car finance because auto lenders sort credit tiers by how high they think you can score. Your credit tier will determine the APR and whether or not you receive an offer. You’ll likely be eligible for a better financing deal if your credit score has increased since the purchase of the vehicle.
Refinance your car loan if you have lower monthly payments. To get a lower monthly payment, you can extend the term of your car refinance loan. It’s important to remember that increasing the term of your car refinance loan (also known as the loan term) will not only reduce your monthly payment, but it will also increase the interest you’ll be paying over the life of the loan. It works in the opposite direction: If you reduce the term, your monthly payment will rise while overall interest will decrease.
Loan Rates Are Lower
You may be eligible for a lower APR if your auto loan rate has dropped in the past. In March 2020, for example, the Federal Reserve reduced consumer loan rates by 0.25% to 0%. The auto loan rates also fell. You can save money by changing rates just a little.
You Have A Positive Equity
If your car’s value is greater than the amount you owe, you may be eligible for a lower auto refinance rate. Contact your lender to find out your loan-to-value ratio. Then, divide it by the car’s actual value.
You Don’t Like Your Current Lender
Refinances are often chosen by people who don’t like their current lender. Poor record-keeping and rude customer service can ruin a relationship. Refinancing with another lender might be an option if you are unable to stand your current lender.
Is Refinancing Worthwhile?
Refinancing is a great option if you are looking to refinance and know that you will get a lower rate and save money. However, if you aren’t sure if you will save any money, you can use the auto refinance calculator and estimate your savings to determine if refinancing is a good financial decision.
Refinances are often done because people need to lower their monthly payments, most commonly due to an unforeseen financial crisis. It is not easy to find the right balance between your immediate and long-term financial needs. But if you do your math and plan accordingly, it will be possible to make the best financial decision for your family.
Refinance your vehicle now to improve your cash flow and get back to a better financial position. After your finances stabilize, you can make extra payments to your auto loan to pay it off faster. However, there won’t be any prepayment penalties. Your auto loan will be paid off sooner, and you’ll save some interest.