Thinking About Refinancing Your Auto Loan
THINKING ABOUT REFINANCING YOUR AUTO LOAN
Chris O'Shea | March 8, 2023
When you should and shouldn’t refinance your auto loan
When you hear the word refinancing, the first thing you think of is probably a mortgage. However, you can refinance your auto loan, too. Here’s how to know if you should, or shouldn’t, refinance yours.
When to Refinance
- Interest Rates are Lower. If loan interest rates have dropped since you took out your auto loan, then it could be a good time to refinance. Even a one percent drop in interest can save you plenty of cash.
- Your Score is Better. Another good time to refinance your auto loan is if your credit score has improved. The higher score will likely mean you qualify for a loan with better terms.
- You Want a Lower Payment. If your budget is stretched thin and you need a lower payment, you might want to try and refinance. Just remember that reducing your monthly payment means extending the term of the loan, so you’ll be paying more interest over time.
When Not to Refinance
- Your Car is Older. The older the vehicle, the harder it will be to find someone to offer you a loan. Most lenders set limits on how old a vehicle can be to qualify.
- You’re Close to Paying Off the Loan. You don’t want to refinance if you’re close to paying off the loan. Often doing so won’t save you much money at all. It’s better to just pay off the loan and be done with it.
- You’re Underwater. If you owe more on the loan than the car is worth (also known as being “underwater”), then you will have a hard time finding a lender to offer you good terms.