There are many variables that play into your auto loan. Credit scores, interest rates, market conditions, knowledge of finance, value of your vehicle and the list goes on.
Navigating these variables can be challenging. Below we try to breakdown five simple areas to consider when refinancing a vehicle.
You should consider the following before you to start down the path of applying for refinancing:
- When you originally financed your car you didn't research financing options. Finance in general is complicated and more than 50% of Americans don't research finance options before they purchase a car. Automotive Dealer loans often carry a higher rate than you could have qualified for but you simply didn't know better. If you didn't research financing options prior to purchasing your car, it may pay to refinance.
- Life happens and something unplanned came up. The unexpected happens to everyone, when it does it may mean you need to lower payments. One way to lower payments is refinancing your car for a longer term. Keep in mind it will cost more in total, but your payments will be more manageable.
- Interest rates have decreased since you originally financed your loan. Interest rates fluctuate often and if rates have lowered since you financed your loan you could save money. It's important to keep in mind that even a small reduction in interest on your loan could save you $25 or more of monthly payment.
- Your credit has improved since your financed your loan. You've been diligently working to improve your credit score paying down credit cards and making payments on time. Credit scores are weighed heavily by banks when determining your ability to finance a loan, make sure to review your score before trying to refinance. If your credit has improved since you originally financed your loan, it could be a good time to refinance your loan.
- Purchasing your car when your lease expires. Sometimes when you lease expires your residual value is lower than the current market value. This can be a great opportunity to buy your car at a great value.
Above we have given five solid reasons to refinance a vehicle. Before you move forward on refinancing your loan you should know that refinancing a vehicle is not for everyone:
- If you've been making payments for three years, odds are you've paid the majority of the interest and refinancing is not for you.
- Understanding what your credit score is important and if you know it has dropped you're most likely not a great candidate.
- Knowing the value of your vehicle is a key piece to refinancing. Make sure your car is not upside down. (Upside down means you owe a lot more than the banks deem it to be worth). You can find the value of your car at NADAguides.com.
We will cover in more detail the reasons not to refinance in future articles.