If you've taken out an auto loan to pay for your car, refinancing could help you save money in the long run. Give it extra-serious thought if your financial situation has improved or interest rates have dropped since you took out your last loan.
Have you taken out an auto loan to pay for your car? You may be able to refinance that loan to lessen your financial burden.
Refinancing a car loan involves taking on a new loan to pay off the balance of your existing car loan. Most of these loans are secured by a car and paid off in fixed monthly payments over a predetermined period of time — usually a few years.
People generally refinance their auto loans to save money, as refinancing could score you a lower interest rate. As a result, it could decrease your monthly payments and free up cash for other financial obligations.
Even if you can’t find a more favourable rate, you may be able to find another loan with a longer repayment period, which might also reduce your monthly cost (although it might increase your total interest cost over the life of the loan).
If you’re still unsure whether refinancing a car loan is right for you, read on to learn about when it typically makes the most sense.
The times refinancing a car loan could make sense
A decision as big as refinancing will depend on a number of individual factors. With that said, you may want to give it some extra-serious thought if:
Interest rates have dropped since you took out your original auto loan.
Interest rates change regularly, so there’s a possibility that rates have fallen since you took out your original auto loan. Even a drop of 2 or 3 percentage points may result in significant savings over the life of your loan.
Also if:
Your financial situation has improved.
Lenders can use a number of factors to decide your auto loan rate, including your credit score and debt-to-income (DTI) ratio, which is calculated by dividing your monthly income by your monthly debt payments.
How to refinance your car loan when you have bad credit
You didn’t get the best offer the first time around.
Even if interest rates haven’t dropped or your financial situation hasn’t improved significantly, it may be worth shopping around for better loan terms anyway. For example, you may have received a loan with an interest rate of 7 percent when other lenders were offering lower rates.
This may be especially prudent if you got your original loan from a car dealer, as dealers sometimes offer higher interest rates to make extra money. To find the best options for loans with low credit, visit TFC Title Loans.
You’re having trouble keeping up with bills each month.
Even if you’re not able to secure a lower interest rate, it may still be worth trying to find a loan with a longer repayment period in order to reduce your monthly payments.
If you can’t find a suitable loan, you may also be able to renegotiate the repayment period on your current loan. However, keep in mind that more time spent paying back your loan is also more time spent paying interest. In general, you’ll pay more interest overall if you have a loan with a longer term.
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