3 Situations Where You Should Considering Refinancing Your Car Loan
Refinancing your car loan may be the best choice for your finances. There are many lenders who offer great rates and options for refinancing a car. The question is when is the right time, if any, to refinance a car loan. Here are some situations where refinancing would be the ideal solution.
1. Your Credit Score Has Significantly Improved
One situation where you should refinance is if you have had a significant change in your credit score. When you first purchased the car the bank looked at your credit score to determine how much you would pay in interest. There are tiers and brackets that they put you in based off your credit score. The lower the credit score, the higher you will pay in interest. Thus, as your credit score improves, not just by a couple points, but by a significant amount, it will jump you up into the next bracket. This means that you could get a significantly better interest rate on your loan, not because interest rates have necessarily dropped, but because you now are a more appealing candidate for a loan.
2. Interest Rates Have Dropped Since You Bought Your Car
Interest rates fluctuate all the time. There may be times when you need to purchase a car and interest rates are not favorable. Then as the market fluctuates you will notice that the interest rates might drop significantly. In this case you could get a much better rate, which would lower your payments and save you money over the long run, if you refinance the car. For this reason, keep an eye out for special promotions from lenders and banks, you might be surprised to see that you can save a great deal of money from moving your car loan over to them.
3. You Need Lower Payments
Another good reason to refinance a car loan is that you need to lower your payments. When you initially bought the car, you spread the payments and the interest over a certain amount of time. That determined how much you would owe each month. However, as you get closer to paying off the car, you might not be able to handle the payments. In this case you can refinance and extend the life of the loan so that your payments are less.
It should be noted that not all lenders will let you extend the life of the loan; it depends on the year, make and condition of the car.
If any of these situations apply to you, you might consider an auto loan refinance.