Perhaps you are looking for ways to reduce your monthly expenses, so you’ve been thinking about applying to refinance your car loan.
For most people, their auto loan payment is their second biggest expense each month, right after their mortgage or rent payment. If you had an easy way to lower your monthly car payment, you’d probably jump at the opportunity. But refinancing doesn’t make financial sense for everyone. How do you know if you’re a good candidate, and if you’ll save enough money to make it worth your time to refinance your auto loan? Here are a few questions to consider before you move forward.
6 Things to Consider Before Refinancing
1. How much time is left on your loan?
If your loan is relatively new, two years or under, then you still have enough time to save a bundle over the life of your loan and you should definitely consider refinancing your car loan. If you have a year or less on your loan, it probably makes more financial sense to try to get the auto loan paid off quickly and reduce the interest paid by putting extra money toward the principal each month.
2. Have interest rates dropped since you got your car loan?
Nationally, interest rates fluctuate from year to year. Just as homeowners take advantage of lower interest rates by refinancing their homes, car owners can refinance their auto loans to capitalize on lower rates.
3. Has your credit improved since your got your car loan?
Suppose you’re a year or two into your auto loan payments, and your credit has improved significantly. Moving up even one credit bracket, from the D range to the C range, for example, could qualify you for a much lower APR on your loan.
4. Did you get a bad deal at the dealership?
We understand. You were at the dealership, in the office, and you were excited about getting behind the wheel. Maybe you got a fantastic deal on the car, but you probably didn’t get such a good deal on the financing, and now you have buyer’s remorse. Nothing sours the love you have for your car faster than paying too much for it. If you’re paying outrageous interest on your car payment, you are a prime candidate to refinance your car loan with us. We can get you a better interest rate, whether your credit has improved or not.
5. Are you upside-down in your car loan?
Being upside-down means that you owe more money on your auto loan than the car is worth. You may be able to correct this situation if you refinance your car loan. Nobody wants the unwelcome surprise of trying to sell or trade in, only to owe more on the auto loan than you can recoup for the car.
6. Does your current loan have any prepayment penalties?
Read the fine print on your current contract carefully. Or, sit down with us at your local branch and let us go over it with you. If your existing car loan charges you a hefty penalty for paying off your loan early, it could wipe out any potential savings you’d get from refinancing.
This material is for educational purposes only and is not intended to provide specific advice or recommendations for any individual.