First of all, what is refinancing? Refinancing your loan means reevaluating the terms of your existing loan, paying it off, and taking out a new loan. You can refinance with your current company, or you can refinance through another lending company.
Refinancing your car will take an application which will likely require information about your income, work history, and credit. As with everything, there are pros and cons to refinancing a loan.
Advantages to Refinancing a Car Loan
1. Save Money
In the long run by finding lower interest rates or shortening the length of your loan. (Your monthly payments may go up, but you will pay a total amount that is far less than your original loan.)
2. Lower Your Monthly Payments
This may actually cost you more in the long run because often when you reduce your monthly payments, you either increase your interest rates or the length of your loan. However, this may still be a good option for people trying to save money up front.
You could consider lower monthly payments if you need money now for an unexpected crisis, such as losing your job or being diagnosed with a condition that will incur immediate high costs.
When Should I Consider Refinancing My Loan?
1. When your credit score changes
If you had bad credit at the start of your loan but your credit has improved with time, you should consider refinancing with your new credit score to see if you’re now eligible for lower rates.
2. When interest rates drop
Consider an online loan calculator (often free) to see if the interest rates have dropped low enough to make refinancing a serious money-saving option.
Obstacles to Refinancing
It may not be a good idea to refinance, or it may not be possible if:
- The loan amount is higher than the value of the car
- The car has more than 100.000 miles
- The care is several years old
Shop around. Do some research. Talk to your lender. See if refinancing could save you money!