Buying a car can be an exciting time. Amidst all of that excitement, it can be easy to make the mistake of accepting a loan with poor terms. However, if you're stuck with an unfavorable auto loan, auto loan refinancing might be the right choice for you. Refinancing a loan is essentially the process of using a new loan, typically from a different lender, to pay off one or more existing loans. When done right, refinancing can lower your monthly payments and allow you to pay off the loan sooner. There are several variables to consider when deciding to refinance an auto loan. These variables include current interest rates, your credit score, repayment terms, vehicle valuation, and more. Ultimately, the goal of refinancing your auto loan is to save money on interest. So, how can you determine when auto loan refinancing is the best choice, and when should you refinance your auto loan? Read on below to find out.
When You Financed Your Current Auto Loan Through a Dealership
Buying a vehicle can often be a very emotional and impulsive experience for the buyer. Knowing this, dealerships rarely offer good auto loan interest rates upfront. This often happens to buyers who do not check their credit scores in advance. If you made the mistake of accepting a dealership loan, refinancing could help you save you a lot of money per year for the remaining duration of the loan. Popular sources of replacement loans include banks, credit unions, and online lenders. Before refinancing, make sure you wait at least 6 - 12 months after purchasing the vehicle to allow your credit to rebound.
When Interest Rates Have Gone Down
Interest rates can fall due to economic and regulatory changes, as well as increased competition within the banking industry. If rates are currently lower than they were when you first financed your auto loan, now could be a great time to refinance your auto loan. These lowered rates can provide you an excellent opportunity to save thousands of dollars without requiring any additional negotiation or loan term changes.
When Your Credit Score Has Gone Up
Your credit score is a key factor in determining your auto loan rate. The higher your credit score, the lower your interest rate. The lower your credit score, the higher your interest rate. If you've improved your credit score since first financing your auto loan, you may qualify for a reduced rate.
As you can see, there are many variables to consider when refinancing your auto loans. Remember this guide, and you'll have all the information that you need to know when auto loan refinancing is right for you.