If you’ve been making on-time payments on an auto loan for a year or more, it may be a good time to consider refinancing the loan so that you can lower your monthly payments.
Refinancing shouldn’t cost you anything as auto loans don’t typically have a prepayment penalty and applying for a refinance has no application fee.
Even if you’re happy with your car loan, it can make sense to refinance. Here are some situations when refinancing is worthwhile:
Interest Rates Dropped
If interest rates are lower now than when you first got your car loan, refinancing could lower your interest rate. This will allow you to save money in interest, which you can pocket, or free up some money that you can put toward paying off more of the principal, which will enable you to pay off your auto loan quicker.
Most people improve their credit scores over time. If your credit score wasn’t good when you first got your car loan, or you didn’t know what it was at the time, check it now to see if it has improved. You might be surprised to learn that it’s good enough to help you qualify for better loan terms. This can be as simple as going to your current lender and asking them to check your credit score so that you can qualify for a lower loan rate.
If your current lender won’t do it, there are plenty of other lenders who will not only do this for you but will also be glad to have your loan. Refinancing will pay the balance of the existing loan and create a new loan, which you’ll send money to on a monthly basis through a new lender.
Your Loan is From a Car Dealer
If your existing loan is from your car dealer, you may have been charged a higher interest rate than you would have been charged somewhere else. Maybe you didn’t shop around for loans or didn’t know you had options. Whatever the reason, if you’ve made timely payments for a year or more, chances are you can now get a better rate elsewhere.
Check your credit score and check online or in person with banks, credit unions and online lenders for a better interest rate.
Falling Behind on Payments
If you bought a car that turned out to be more than you can afford and are struggling to make the loan payments, or are having other financial difficulties, refinancing an auto loan can lower your payments. You can also extend the loan to give you more time to pay it, though that will lead to paying more interest over the life of the loan.
This article is intended for informational purposes only and should not be construed as professional or legal advice.