When Should You Refinance Your Car Loan?
If you’re thinking about refinancing your car but not sure it’s worth it, you’re not alone. It may sound good in theory, but it’s a personal decision and there is no one-size-fits-all answer.
The first step in deciding when to refinance a car loan is learning more about the process. How does it work? What are the benefits? These are important questions to consider.
Continue reading to learn more about when to refinance a car loan and determine if it is the right choice for you.
How Does Refinancing Your Car Loan Work?
Before we look at when it makes sense to refinance, let’s take a look at how refinancing your car loan works.
Refinancing your car loan is obtaining a new, different loan to replace your original loan. Your new loan will pay off the old one and you will have a new rate and loan term. Often, but not always, this new loan is with a new lender. When you refinance, your loan collateral is your car.
There are many reasons to refinance your car loan, but you have to make sure the decision is the best option for you. Sometimes, the choice is obvious – for instance, you find a lower interest rate or more favorable terms. Other times, it’s a more specific, personal reason.
Take the time to assess your situation and how it relates to deciding when to refinance your car loan.
When Does It Make Sense to Refinance Your Car Loan?
The first thing you should do before making any financial changes is to check your credit reports. If you’ve determined that you’re in a good position, it may make sense to refinance your car loan and tap into the potential benefits.
A Better Rate
If your credit score has improved since you got your initial car loan, you may find you qualify for a better interest rate. Look around at the different lenders and their offers to see if you can find a better interest over the life of your loan’s remaining balance.
Lower Monthly Payment
A better (lower) interest rate means that you can usually get a more affordable monthly payment if you maintain the same term.
On the other hand, you may find that refinancing for a longer term on your loan is a good way to lower your monthly payment if you need more cash on hand.
Save Money on the Life of the Loan
For borrowers who are interested in playing the long game, a new loan and/or a new lender may help you save money over the life of the loan. Some borrowers prefer to refinance for shorter loan terms so that they can pay off their loan earlier, paying less interest.
Particularly if you are interested in financing with a new lender, you may also want to find a financial institution that helps you avoid the prepayment penalty that some lenders charge if you pay off your loan early.
Removing a Cosigner
If you started your loan with a cosigner, and circumstances change, you may want to end the arrangement. In this situation, and if you have a solid credit history, refinancing so there is only one borrower on the loan can be a good option.
Sometimes, borrowers’ reasons for refinancing are a little more straightforward. A bank or financial institution may be offering cash-out offers on loan refinancing, which means borrowers with equity in their cars can receive cash from the lender.
Wondering if you have equity in your car loan? Ask your current lender for your remaining loan balance, as well as ten days of additional interest. Then, consult a valuation authority like Kelly Blue Book to see the value of your car’s make, model, and year. You have equity if you owe less on your auto loan than the value of your car.
You Just Didn’t Know Better
It’s entirely possible that when you bought your car, you didn’t get a chance to shop around. Or maybe you simply didn’t think about it, or it was your first time and you weren’t aware rate shopping was an option.
Whatever the case, as time passed, you became aware of other lenders, other types of financial institutions, and other deals, and realized you could qualify for a better rate or deal somewhere else.
When to Refinance Your Car Loan With OUCU Financial
If you are trying to decide when to refinance your car loan or are ready to pull the trigger, let OUCU Financial be your guide. Since we’re a member-owned, nonprofit credit union, we can offer competitive rates and higher dividends as well as a variety of benefits and services.
Even better, because we’re based in the same community where our members live, go to school, and work, we can offer the kind of personal customer service bigger places just can’t match!
If you’re intrigued by the idea of borrowing from a credit union but aren’t sure whether it’s right for you, we’d love to help you make up your mind! Read more below to learn why OUCU Financial is right for you!
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