Why should I refinance my auto loan?
Have you ever bought something, only to see that same item go on sale a week later? You’re probably kicking yourself for missing out on a better price, but the best deal is not always going to be available when you need it. Who hasn’t splurged for that extra package of cookies, only for a BOGO discount to be advertised a couple days later? We’ve all been there.
The same is true for buying a car. You might not have gotten the interest rate you would have liked for your auto loan, but you were willing to settle for what you got. The good news is that lenders believe in second chances. There might be an opportunity to lower your interest rate or reduce your monthly payments, so long as you know when it’s the right time to refinance.
When is the right time to refinance?
First things first: You can’t refinance an auto loan if you don’t already have one. As long as you check that box, we can keep this train moving. The next box to check is finding a lender, and probably not the bank or credit union you worked with on the first loan. Approaching a competitor can work to your advantage. When you walk into another bank or credit union, remember that they want your business. It’s up to them to win you over. The key to victory? One word: Savings.
Imagine that you’re 12 months into a 48-month auto loan. What if you could get a new loan with a new lender and pay off the last three years at a lower interest rate? If you want to make smaller monthly payments, you could even extend the length of your loan. That’d mean paying more interest long-term, but if you’re looking to make a dent in your current spending, your monthly bills could be more manageable.
Think of the length of your current loan like a road trip. The final destination is owning your car. When the notification pops up on your phone that a quicker route is available, it might be worth listening. If you think there is a chance your credit score has gotten better since you got that loan, it could also be time to look for your own shortcut. It’s worth at least considering the potential savings if you have the opportunity to refinance with more favorable loan terms.
Is auto loan refinancing right for you?
The question of whether to refinance is a lot more complicated than, “Do you like savings?” If you’ve already paid off most of your original loan, the potential savings could be small and it might not make sense.
It’s also a good idea to check if there are prepayment penalties for paying off your current auto loan earlier than planned. Do your homework on applicable fees first. Refinancing fees, like lien holder and state re-registration fees, are a thing. Be sure that you can afford these fees and that the cost won’t outweigh the potential savings.
Applying for more credit in the near future? Then consider holding off on refinancing, which can negatively affect your credit score in the short term.
If you’re considering refinancing your auto loan, please get in touch with us. We’re in the business of helping you save.