Refinancing an existing car loan involves taking out a second loan to pay the outstanding balance. These loans are secured with a car and paid off in fixed monthly installments over a time frame, typically a few years.
People refinance their car loans to save some money. You could see a decrease in your monthly payments. This will allow you to have more cash to cover other financial obligations.
Even if the rate you’re offered isn’t the best, you might be eligible for a loan with a longer repayment duration. However, it might lead to a lower monthly payment, which could mean a lower total interest cost over the loan’s life.
If you’re still unsure if refinancing car loans is right for you then read on to discover when it most often makes sense.
When can you refinance car?
Auto refinancing is a major decision that will be affected by many individual factors. These are just a handful of the many factors you should be aware.
If you’re thinking about refinancing your car loan, you may want to use a car refinance calculatorto get an estimate of your monthly payments. The calculator will also show you what changes, if any, would result in lower payments. You can use the calculator to compare different car loan offers and find one that’s best for you.
Not the best offer
Even if interest has not dropped and your financial situation doesn’t have significantly improved, it’s worth looking into other loan terms. A loan you got may have had an interest rate of 7.7% while other lenders offered lower rates.
This may be especially useful if you received your original loan from the dealer. Dealers can sometimes offer higher interest rates to make extra money. It’s difficult to keep up with the bills each month
Even if you aren’t able to obtain a lower rate of interest, it might still be worth searching for a loan with longer repayment terms to lower your monthly car payment.
If you aren’t able to find a suitable loan for you, you may be able to modify the term of your current loan. You should remember that paying your loan back takes more time than paying interest. A loan that has a longer repayment term will result in you paying more interest.
When do you need to hold off refinancing?
Refinancing your vehicle can save you money but it isn’t always the best option. If these are your circumstances, you may want to defer refinancing.
You have already paid the majority of your original amount
Interest is often front-loaded. That means you pay more in interest upfront. The less time you wait to refinance the better your interest rates may be.
The benefits outweigh the fees
Refinance fees are important to consider. A prepayment penalty might apply if your auto loan is paid off earlier than you planned. Some interest will be charged in addition.
Even worse, certain loans, such as loans that have precomputed interest, require you to pay all and the principal.
Refinance costs are likely to be incurred. These fees could include state reregistration or lien holder charges. Although not prohibitively expensive, it might be worthwhile to check if you are able to afford these fees before refinancing.