Wondering, “When should I refinance my car loan?”
The short answer is, it depends! It depends on: your eligibility for a refinance, whether you’re a good candidate for a beneficial refinance, and other factors related to your personal finance and broad financial trends.
Here are three key things to think about:
Can you refinance your loan?
Is the time right for you?
What do you want to achieve through refinancing?
Borrowers are generally able to refinance an auto loan from a few months after the start of the loan until the last 1-2 years of the loan, depending on a variety of factors, but refinancing very early or very late in the loan is less likely to save you money.
You may also want to time your refinance based on your credit score, your finances, broader interest rates trends, or other changes you might want to make to the loan (like adding or dropping a co-borrower).
The refinancing process can lower your monthly payments and help you get out of debt faster. But should you refinance your vehicle right now? If you're thinking about it, here are some things to consider:
Is your auto loan term nearing its end?
Are you struggling with high monthly payments?
Have interest rates gone down?
Has your credit score gone up?
Do you want a lower interest rate?
Do you want to add or drop a co-borrower?
Ultimately, the right time to refinance a car loan depends primarily on your vehicle, your current loan, your finances, and your credit score, but there are many factors to consider.
Dive deeper in the next section to decide if now might be the right time for you to refinance a car loan.
Consider these five key factors to decide when you should refinance your car loan:
Your existing loan
Your credit score
Your cash flow
Your eligibility
Interest rates
Let’s break these factors down.
Where and when you got your existing loan – and the details of that loan – are all among the deciding factors in whether you’ll be able to find a better deal.
It’s worth noting that, if you got your loan through dealership financing, the odds are very good you could save money by refinancing, as dealerships often add mark ups to their rates.
When thinking about whether or not to refinance your car loan, it is important to know the current interest rate and term of your loan. You should consider the amount of time left on your loan and any prepayment penalties.
Prepayment penalties are fees your lender charges you for paying off the loan before it is due. Beware: some lenders will not refinance loans that have prepayment penalties attached.
That said, even if your current loan has a penalty attached, it may still be worth it for you to refinance. In some cases, you may be able to save more by refinancing than the cost of the penalty. This is especially true if you got a particularly bad rate on your existing loan (which frequently happens when you buy a new car directly from the dealer).
If you have had your loan for several months and/or have several years left on your current auto loan, refinancing may be the right decision.
After all, refinancing your car loan can be a great way to save money on interest and get lower monthly payments!
If you refinance your loan to a longer term, you’ll likely be able to lower your monthly payments – but you could end up paying more in interest. On the flip side, if you can refinance at a lower interest rate and at a similar or even shorter loan term, you’ll be able to save money in the long run. (That’s one of the things that makes refinancing so great!)
Your credit history is one of the biggest factors in being able to refinance with most lenders. If you have good enough credit, refinancing your car could save you hundreds or even thousands of dollars.
Refinancing can be a great option if you have improved your credit and want:
lower monthly payments OR
a longer term on your loan
Better credit can also qualify you for a lower rate than you initially received so that you can pay less overall, regardless of whether or not you want to change your other loan terms.
If your credit score has gone down, on the other hand, you may not be eligible for a better rate than your current loan.
The most important thing to note when it comes to your credit score is that you’ll want to avoid:
refinancing right before or after and other major purposes, as each credit pull will temporarily lower your score
refinancing multiple times, as doing so could hurt your score, and rates usually go up with additional refinances.
If your income has gone down or you want more money in your pocket for added expenses, refinancing your auto loan could make sense for you. Doing so can lower your monthly payments and help save some cash, without having to change or get rid of your vehicle.
Refinancing offers tons of potential savings and can be helpful for people who have limited cash flow. For example, if you’re unemployed and need money in your pocket right away, refinancing can lower your monthly payments and even give you the option to take a few months off from making a payment.
Before refinancing your car loan, make sure you refinance for the best possible price. Shop around and compare offers before signing any paperwork to make sure you’re saving as much as possible. Unlike the competition, at Auto Approve, we never mark up the rate the bank offers you, so we pass maximum savings on to you.
What makes you eligible to refinance your car?
This varies based on the lender, but eligibility can depend on:
how old your car is
how many miles you have on it
how much money is left on your loan
and other factors
If you’re not sure whether you’re eligible to refinance, don’t worry – we can help! Talk to one of our knowledgeable and friendly Auto Approve agents or use our handy online quote form to find out if your vehicle loan qualifies and how much you might be able to save in a jiffy.
With all that out of the way, the final important factor you should consider when deciding when you should refinance your car is the broader picture of interest rates.
When it comes to interest rates, things have been all over the place in the past several years, with big fluctuations in vehicle prices and rates. Depending on when exactly you financed your vehicle, average rates may be lower or higher now, and your loan-to-value ratio may have shifted. It’s worth reviewing how rates have changed and how your vehicle’s value has changed since your initial loan when you’re thinking about refinancing.
With that in mind, if you’re eligible, it may be a great time to refinance your automobile right now – the only way to know for sure is to check.
When everything aligns! Many things go into making the decision to refinance your loan, but this article should help you know better what to look for. For many people, refinancing can help save money monthly and pay less over the life of the loan.
And the good news is, getting a free quote is easy!
There’s no commitment or credit check to find out what rates you might be eligible for, and when you decide to refinance, an AutoApprove agent will help make sure you find the best deal for you and then do the paperwork for you, making refinancing quick and easy.
So, whether you’re on the fence or ready to dive into refinancing, get your free quote now.