When Should You Refinance Your Auto Loan?

When Should You Refinance Your Auto Loan?

Refinancing an auto loan shall be a good way to lower your monthly payments and save money on interest charges. However, if you don’t plan carefully, refinancing may also cost you more in the long run – so it’s essential to know when it’s worth refinancing and when it’s not. 

Let’s walk through some of the everyday situations that warrant refinancing and some that don’t, as well as an important consideration that will help determine whether or not you can refinance successfully in the first place.

What Is Refinancing Your Auto Loan?

Refinancing an auto loan refers to when someone takes out a new loan to pay off an existing car loan. There are a lot of lenders and options available, so check out some online tools such as Lantern by SoFi’s comparison tool, which looks at rates from top lenders.

This can be helpful if you need cash or want to take advantage of lower interest rates. Before you pull out your checkbook, however, make sure refinancing makes sense for your specific situation.

Reasons Why You Need to Refinance Your Auto Loan

To accurately decide whether or not you should refinance your auto loan, it is first important to determine how long you have owned your vehicle. Depending on how long you owned it, there could be a variety of reasons why refinancing is a good idea for you, such as:

  1. You can save money on your monthly payments
  2. You can lower your interest rate, which will save you more money over time
  3. You can get out of debt faster if your vehicle is costing you money each month
  4. You can convert to an auto loan with a longer-term, which will lower your monthly payment amount
  5. You can refinance into a low mileage auto loan or an auto loan with no mileage limit if your car is new

Keeping your vehicle for a short time, then paying off a portion of your auto loan by refinancing may be a good idea because it will save you from taking out additional debt later down the road. Additionally, if your interest rate is currently higher than average and refinancing would allow that interest rate to decrease, it might be worthwhile to look into that option again.

Should You Refinance When Interest Rates Decrease?

There is a saying that time is money, and that couldn’t be more accurate than when it comes to refinancing your auto loan. 

When interest rates decrease, you can take advantage of lower rates and refinance your auto loan—meaning, you get a new vehicle with a better rate. To get started, you’ll want to see if refinancing makes sense for you.

What Are Factors To Consider When Refinancing Your Auto Loan?

If you already have an auto loan and are thinking about getting a new car, you should ask yourself if refinancing is right for you. But, first, let’s take a look at what factors could affect your decision.

  1. Compare interest rates and/or your term with different companies
  2. Will the company help you consolidate your loans if applicable
  3. Do they offer a pre-pay option
  4. What do they offer to lower your monthly payment, e.g., a payment waiver, etc.
  5. Are you eligible for HARP? (if you’re underwater on your mortgage)

And while we’re at it, here’s why refinancing isn’t always in your best interest—even if it sounds like it should be. If you’re planning to own a new car, then it’s a good idea to re-evaluate your options before going into that dealership. That way, you can potentially save some money and get a better deal on a loan for your new vehicle.

If you’re struggling with a lack of understanding or a bad credit score, then a refinanced loan might just be the best thing that ever happened to you! The average consumer saves an average of $1,110 by refinancing their loan — that’s money that you can use for your family, your friends, or whatever else you want.

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