Deciding when to refinance your car loan can be a big decision. There are several factors to consider when it comes to the timing of a refinance and your situation. We’re here to help you understand how to refinance and then review what situations make refinancing a great option for you take advantage of.
How to Refinance
Refinancing your auto loan will be a similar process to getting your original loan. You’ll need to fill out an application and provide documents to verify your income, identity, and the information of the vehicle that you are refinancing.
Additionally, you will also have your credit checked so the lender can view your credit score and history. This information and your credit will be used to help determine the amount you can qualify for and what your loan options are.
Once you know what options you can qualify for, it’s time to compare and evaluate your options to find what the best fit is for you. Your lender will be able to provide you with details about whatever options are available to you and answer any questions you may have about the refinancing process.
For a more in-depth explanation about the process of refinancing, check out this article on when to refinance a car loan.
When to Refinance
There are several reasons that it might just be the right time to look into refinancing your car. You’ll need to do a little research to see if these reasons match up with your situation. If they do, you may be able to get an auto loan that better fits your needs and could save you money.
Credit Score Improved: If your credit score has improved since you received your original loan, you may be able to save money on your auto loan. Having a higher credit score could enable you to qualify for a lower interest rate that may have been previously out of reach.
Change Loan Terms: Adjusting your payment can be a great way to make your loan more affordable or to pay it off sooner. By lengthening the loan term, you’ll have a lower monthly payment, but you’ll end up paying more in interest overall. In contrast, if you shorten the loan term, you may have a higher monthly payment, but you’ll pay less in interest over the life of the loan.
Interest Rates Decreased: If interest rates have significantly dropped, that could be another reason to refinance and save money. With a lower interest rate, you may find a lower monthly payment or substantial savings over the life of the loan.
Unhappy with Lender: There are a variety of reasons why you may be unhappy with your current lender. Some people may feel that they were pushed into a specific lender while buying the car, while others may feel that they want better customer service. Whatever the reason, it’s important to also consider loan terms and interest rates while comparing new lenders.
When Not to Refinance
If the situations above don’t apply to you, it may not make sense to refinance your loan.
Interest Rates Have Increased: Interest rates fluctuate over time and can vary dramatically between years. If you refinance at the wrong time, you may find that you'll pay more each month or even overall due to the interest rate. It may be worth the wait for interest rates to go down.
Credit Score Has Decreased: If you've found that your credit score has decreased since you initially took our your loan, it may be worth holding off on a refinance. You could find yourself paying more on your loan with a high interest rate, a larger monthly payment, or experiencing other unfavorable terms.
Upside Down in Loan: It’s important to look at the state of your current loan. If your auto loan is a higher amount than the value of your car, refinancing may not be a good option for you. Being upside down on your car means that you would need to pay down the loan to the current value of the vehicle before being able to refinance.
Related: How to Get Out of an Upside Down Car Loan
Vehicle Age: The age of your car, particularly if it’s an older model or brand new, can also make refinancing an unwise choice. You may find yourself with fewer or less favorable loan options than you previously had.
It’s important to look at your situation and decide when to refinance your car loan. There are a variety of factors that can help you find better loan terms, pay less overall, or enjoy a lender that better fits your needs. Be cautious though and make sure that refinancing will make sense for your situation.
