If you’re looking to save money amid this COVID-led slump, refinancing your auto loan to a more competitive interest rate to lower your repayments might be a viable option.
However, unlike refinancing a house loan, there is a lot more to consider when refinancing a vehicle loan than just earning a lower interest rate.
Are you thinking about refinancing your car?
Most consumers who contemplate refinancing their automobile loan do so to decrease their monthly payments by obtaining a lower interest rate. Others choose to do so to have more freedom or combine their obligations.
However, there are other factors to consider when refinancing your auto loan, as well as numerous reasons why refinancing may not be a good idea. To find out if refinancing is right for you, use the car refinance calculator. It will take into account your current loan balance, interest rate, and other factors. You can also compare different loans and find one that best suits your needs.
When is it time to refinance your vehicle loan?
1. Interest rates have fallen since you took out your first loan
One of the most common reasons individuals refinance their auto loans is to achieve a lower interest rate. Keep the original loan term rather than refinancing to a longer loan term if you’re refinancing to achieve a better rate.
If you refinance to a longer loan term, your monthly payments may seem lower, but you’ll pay more in interest over the life of the loan, so you won’t be saving money. If you adhere to your initial loan term, you may pay off a portion of your debt faster.
2. You wish to lower your monthly payments
Your monthly vehicle loan installments would also fall if you refinance to a more competitive interest rate, which is perfect if you’re seeking to save money at this time.
If you need to free up some cash, refinancing to a longer loan term may reduce your monthly payments, but keep in mind that you’ll end up paying more in interest over the life of the loan.
If you keep your monthly payments constant by keeping to the original loan term, your cash flow will not alter in the short term, but you may be able to pay off the loan sooner, saving you money in the long run.
3. Your credit score has risen
If your credit score has improved after you obtained your auto loan, you may be eligible for a lower interest rate.
A negative credit score has a significant influence on how high or low your interest rate is, so if you’ve been excellent and attentive with your repayments, you could be able to get a reduced interest rate.
4. Obtain a loan with enhanced characteristics
You may be able to discover a vehicle loan with additional options, such as the ability to make extra or more frequent installments to help you get out of debt faster.
5. You wish to shorten the duration of your loan
Perhaps you’re in a great financial condition right now and want to pull ahead on your payments, but your current auto loan doesn’t enable you to do so or costs you a high price for doing so.
In this instance, refinancing to a loan with a shorter loan term or that allows for more installments may be a wise decision.
6. You wish to prolong the duration of your loan
If, on the other hand, you wish to extend the duration of your loan, it may make sense to refinance to a loan with a longer payback period.