If you currently have an auto loan with monthly payments, you may have considered refinancing your auto loan. By refinancing, you can save hundreds of dollars on your monthly auto loan payments. Thanks to technology and the internet, refinancing your auto loan often takes a small amount of time, and most lenders will give you your new rate within a few minutes of finishing your application.
When You Should Refinance
But is an auto loan refinance right for you? Refinancing could be the right choice under a few circumstances. For instance, if your credit score has increased since you received your auto loan, you are likely to be able to refinance your loan and get a much lower rate, potentially saving you hundreds of dollars per year in interest expense. If you are also in a better financial situation, your debt-to-income ratio may have improved. Having a lower debt to income ratio can possibly qualify you for better loan terms at a lower interest rate as well.
Another great situation to refinance your auto loan is when interest rates are low. Typically, interest rates can change from day to day and month to month. There could be a chance that the interest rate for auto loans could have gone down from the time you originally took out your loan. Even a drop if 1-3% could potentially mean a savings of a few thousand dollars per year. Be sure to check online and compare the current rates that your auto lender has and see if there is a difference in the amount.
If you are having trouble keeping up with your bills each month, an auto loan refinance might be a good choice as well. Even if you can’t get a lower interest rate, you might be interested in possibly signing up for a loan with a longer repayment term. This can lower your monthly payments but can result in more interest charges throughout the life of the auto loan.
Even if your credit score or financial situation did not approve, there is a chance that you did not get the best possible rate from your original lender in the first place. Be vigilant and shop around for the best rates possible. Check online and call your local bank or credit union to shop and compare rates.
When You Shouldn’t Refinance
Refinancing can save money, but in some cases, it is not necessarily the best option. For example, if you have already paid off most (50%+) of your original loan amount, you will not be saving too much when it comes to the interest charges, as interest is usually front-loaded.
If your car is old and has lots of miles on the odometer, it most likely has depreciated significantly. For instance, many lenders will not refinance cars with over 80,000 miles or meet a certain age.
If you don’t want to go through the hassle of refinancing and want to get an auto loan for a new car, CrediReady can help. Our nationwide network of trusted dealers and lenders work with buyers in all credit and financial situations. Take a moment to fill out our free no-obligation form today and start car hunting for your new car!