Every once in awhile, it makes sense to refinance your auto loan – or any loan, for that matter, depending on your financial status. For a car loan specifically, most lenders require a good history of 6-12 months of payments to make a refinance offer possible. This is especially helpful if you started out getting a bad credit auto loan, but your finances have improved since then, and this is reflected in your recent history of on-time payments and a possible change in credit score.
In the following, you’ll better understand what conditions make a car loan refinance a viable move.
1) A Recent Fall in Interest Rates
This is one of the more common reasons, given the volatility of financial markets and the overall economic climate. A fall in interest rates from the time when you got your initial car loan means you’re paying more than you have to. Refinancing this loan could mean you pay less interest, as well as pay off the loan faster than anticipated. Keep an online interest rate calculator bookmarked on your computer or phone so that you can quickly check the rates; then, see your lender’s terms of conditions on refinancing.
2) Your Credit Score Went Up
If you’re making steady, on-time payments on your credit cards and your auto loan, then it shouldn’t be a surprise to see your credit score rise several times within a single year. In fact, it’s almost guaranteed – half-a-year of timely payments will result in an improvement in your FICO score, and thus you could be eligible for a better rate than the 6% one with which you’re currently saddled.
This is a fairly common scenario with people who had to make a bad credit auto loan decision; you’ve become more responsible or better-positioned financially in your adult years, and so your credit history will reflect that.
3) Problem Making Payments
Being able to refinance doesn’t always require an improvement in your financial situation. Let’s say you took out a car loan that you thought you could handle, but it turns out the monthly payments are too much. Or, you lost your job or got a lower-paying position – the reason doesn’t really matter, as we all have faced financial gray skies.
This is one of the only reasons to opt for a longer loan term, because it will lower your monthly payments. Once this time of hardship has passed, you can look into refinancing again if it makes sense to make the payments larger and being your auto loan back in line with the car’s actual worth.
And then, there’s always the case where you realize you bought a car that you knew would probably be too much for you to handle. A luxury sedan for purposes of vanity, for example. We’re only human though, and mistakes exist to be corrected. Refinance as soon as possible, and you’ll breathe a sigh of relief when you notice the monthly financial burden become more manageable.
Steps to Refinancing
If any of the above applies to you, first check with your lender to ensure that they don’t have any adverse prepayment stipulations. Then, find out their interest rates and compare with at least two other lenders. Since we live in the age of the Internet, you can also use any of several interest rate comparison services to quickly obtain the lowest rate for which you’re eligible.
Lastly, a word to the wise: create a new email account so as to filter the unending offers that may come your way if you use such a service. Now it’s time to benefit from auto refinancing!