Should You Refinance Your Auto Loan?


Here are five main situations in which refinancing your auto loan makes the most sense.It’s a tempting thought: Get a lower monthly car payment by quickly, and relatively painlessly, refinancing that high-interest auto loan. But not so fast—refinancing isn’t for everyone; in fact, there are instances where it will hurt you more than it will help. Here are five main situations in which refinancing your auto loan makes the most sense.

1. If interest rates have gone down.

For the most part, if you are at 6 percent APR, you are in decent shape. Anything over that, and you should look into refinancing. If interest rates have dropped around two or more points since you purchased your vehicle, you could save a lot of money over your loan term. However, keep in mind that refinancing loans are considered used car loans; therefore, rates for refinancing are usually higher than they are for new car loans. Always do your homework before signing on the dotted line.

2. If your credit score has increased.

Congratulations—your credit is improving. Over time, negative markings on your credit report will be expunged, meaning your score should naturally improve. Your credit score has a major influence on auto loan rates, so a lender could very well be persuaded to offer you a lower refinancing rate than you had previously.

3. If you got a dealer-sourced loan.

Say market rates were low and your credit report was unblemished. You still may not have gotten the best rate possible when you purchased your car. “Dealer-sourced vehicle loans commonly carry a higher rate than the consumer deserves because the consumer simply didn’t know better,” explains Russ Heaps on Bankrate.com. “The extra money is a profit source to the dealer, like rust-proofing or extended warranties.”

4. If your financial status has changed—specifically, for the worse.

If you had a financial setback, refinancing could help by extending the loan term and therefore reducing monthly payments.

5. If you are purchasing your leased vehicle.

Typically when your lease is up on a car, you are given the option to buy the vehicle. It is a natural time to refinance.

Conversely, if you are upside-down on your loan, which means you owe more on the vehicle than it is worth, attempting to refinance likely would not benefit you. Other things to consider are the age of the vehicle (many lenders won’t refinance a vehicle after certain amounts of time), your outstanding balance on the car (there are upper and lower cut-off points) and early pay-off penalties on your current loan (if there are fines outlined in the contract, it may not be worth the fees to refinance).

As noted, it is always best to research all of the above measures and compare them to your personal circumstances. Stop by today to see what we can offer you.

 

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