Refinancing your car loan doesn’t always make sense. But if conditions are right, you can lower your current expenses, lower your overall interest, or get better customer service every month with fewer hassles.
When You Have More Month Than Money
If your income has shrunk since you bought your car, you can lower your car payment by refinancing the current balance for the original terms. Contact your current lender and let them know what you’re considering to keep things simple. If they don’t work with you, check out a
- local bank; they may be more hungry for your business
- the local credit union, and be sure to check out their other offerings
- online bank; their rates may be better than anything you can find in a sticks and bricks bank
Be prepared to set up a savings or checking account and direct deposit at least part of your paychecks to these banks to cover the car loan payment. If you can make it work, deposit a bit more than your payment to build up savings as you pay off your car.
When You’re Ahead On Your Car Loan
If your financial situation has improved, you may be ahead on your car loan. In these cases, you can refinance your car for a shorter term or a better interest rate. Be aware that some lenders cannot work with you if your car is older, has more miles, or is out of production. Carefully consider fees in these instances; prepayment penalties could wipe out any benefits of a refi if you’re ahead on your loan.
When You’re Unhappy With Your Current Lender
Too often, folks get car loans with a lot of add-ons. If you financed your first car and got an extended warranty or other add-ons, you may be facing longer terms. A refinance with another lender can help you get out of this burden. Refinancing can also protect you from poor customer service and hard-to-reach loan officers. Banks and other financial institutions need to serve clients of all sizes. If your bank makes you feel like your money isn’t worth their time, move your money and your loan.
When You’re Paying Too Much in Interest
According to Lantern by SoFi, even a small drop in your interest rate can make auto loan refinancing worth your time and effort. If you’ve been working to improve your credit rating and you can get a better rate, take it. Often, drivers who finance a vehicle through a dealership find that processing fees can quickly pile up on their monthly payments. Check out the rates at the bank where your regular check gets deposited to see if you can get a better rate with fewer fees.
Every car owner’s situation will be different, and not everyone can rely on refinancing. If your credit score is slowly improving, be aware that these hard pulls can lower your score for a short time. Do your research carefully before getting to a conclusion. Read reviews and talk to existing customers to learn more about a financial institute.