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When to Refinance a Car Loan

If you’ve had your car for a couple of years, you may be wondering if you should refinance your loan in search of a better rate. While it may seem like a quick way to get a better rate, you should also take into account your credit score, whether the loan has better terms, and if you need your term adjusted. Before making your decision, consider if any of these reasons apply to you. 

Couple discussing an auto loan with a banker.

 

 

Changes In The Economy/Personal Finance 

You See a Drop in Interest Rates

What goes up, must go down. If you bought a car when interest rates were on the rise, chances are rates have come back down. If you notice that other lenders are offering lower interest rates than when you initially financed your loan, it might be a good idea to look into refinancing. This can lower the total amount of interest you are paying on the loan as a whole. Remember that with loans, you pay the most interest at the beginning of the loan. So refinancing earlier in the life of your loan will be in your best interest.  

 

You Need a Lower Monthly Payment

Life is as much of a roller coaster as the economy and sometimes your financial situation changes suddenly. If you refinance your car loan, it may lower the cost of your monthly payment. This may be through a lower interest rate or extending the loan. Either way, you can save money monthly through a smaller payment. 

 

Your Credit Score Has Increased

Your credit rating determines your interest rate. If your credit score was a little less than desirable when you first financed your car, you probably ended up with a higher interest rate. Any growth in your credit score can result in a significant amount of savings on interest throughout the life of the loan as well as the benefits of a lower monthly payment.

 

Image of a credit score on a computer.

 

Things That Can Affect Refinancing a Car

Refinancing your car has loads of benefits. But there are a few things that should be considered before you jump into all the refinancing options available. 

 

The Value of Your Car

A car will depreciate in value, sometimes more quickly than we would like. When preparing a loan for a car, the lender will make sure that what you owe on the car is not more than what it is worth. This is a high-risk scenario for lenders because if something goes wrong, the car doesn't cover the full amount of the loan. Be sure to check the blue book value of your car before contacting a financial institution for refinancing information.

 

The Age of the Car

Similar to value, the age of your car may be a problem for the lender. Cars that are more than seven years old have a higher risk of incurring problems that can result in the car becoming unusable without a significant amount of repairs. While the availability of a loan for older cars varies, you will want to know what their limit is on age if you need to refinance an older vehicle.

 

After all of that, if you’ve decided that refinancing might be the right option for you or just want some information on your options, contact one of the personal loan experts at RMCU. We’ll be sure you get the funds to move forward!

 

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