When it comes to your finances, there’s nothing better than making the last payment on your car loan.
But, before that happens, you’ll put in a lot of work paying down your loan. At some point along the way, you may wonder if it makes sense to refinance the loan as a means of saving money and freeing up cash for other expenses.
Here are a few scenarios in which it makes sense to refinance:
1. Lower Rate
At the time of buying your vehicle, interest rates may have been higher than what they are today. Just the same, you may not have qualified for a low rate as a result of a poor or fair credit score.
If rates have dropped and/or your credit has improved, it makes sense to at least consider refinancing your loan.
2. You Want a New Lender
There may come a point when you no longer want to deal with your current lender. There are many reasons for this, such as if they’ve made mistakes on your loan in the past or are coming up short in the customer service department.
If you’ve lost all trust in your lender, learn more about refinancing as a means of making a change.
3. You Need a Lower Monthly Payment
This could be the case for many reasons. Maybe you lost your job. Maybe you’re unable to work because of an illness. Maybe you’ve taken on more expenses than you’d like.
If you need a lower monthly payment to stay afloat, a refinance may be your best option. This is particularly true if selling your vehicle isn’t an option, such as if you’re underwater on the loan.
Does all this sound good to you? If so, don’t pull the trigger on a refinance just yet. Here are some times when it doesn’t make sense:
- Most of your original loan is paid off: In many cases, you pay more interest in the early years of a car loan, meaning the worst is behind you. So, it may make sense to keep your loan, as refinancing isn’t likely to save you much.
- You have an old, high mileage vehicle: Many lenders won’t refinance an old vehicle and/or one with high mileage. For example, 75,000 miles and seven years is the cutoff used by many lenders.
- Too many fees: Before you sign on the dotted line, ask your lender to explain all the fees associated with your refinance. Are there prepayment penalties? Origination fees? Any others?
It can’t hurt to learn more about refinancing your car loan. Review your current loan – with an eye toward the balance, months remaining, monthly payment, and interest rate – and compare it to what you can secure through a refinance.
Once you collect all the appropriate information, you’re in position to make a confident decision as to what you should do next.
Have you ever refinanced an auto loan? Were you happy with the decision, or did you look back and wonder what you were thinking?