These days, the majority of car buyers take out an auto loan to help pay for their new or used vehicle purchase. These loans can range from as few as one or two years in length, all the way up to eight years or more.
If you took out an auto loan a few years ago, you may decide that’s no longer the right loan for you down the road. You might find that you’re managing too-high of an interest rate, your monthly payment might not fit your budget, or you could want to be out of debt sooner. In many cases, refinancing your auto loan while you still owe can be a great way to save money and take out a loan that’s an even better fit for you.
Here are some reasons you should consider an auto loan refinance (also known as a refi), and what to look for when you’re shopping around.
Just because you took out an installment loan when you bought your vehicle doesn’t mean you’re stuck with that loan, lender, or loan terms until your car is paid off. Refinancing your loan can allow you to replace your existing loan with a new one, which will have its own loan terms and features.
Finding the right refinance loan can unlock a number of benefits and cost-saving features. But when is the right time to shop around for a refinance?
The interest rates offered by banks and other financial institutions are, in part, based on market rates. If interest rates have dropped since you purchased your vehicle, you may be able to get a lower rate even if nothing else about your financial situation has changed.
Spend some time looking at the rates offered by other lenders to see if they have trended downward. If they have, it could be worth getting pre-approved for a new refi loan to save yourself some money.
Your personal credit history and score will play an important role in your auto loan options. A better credit score will mean more lenders who are willing to offer you better loan terms and interest rates.
Your credit could improve for many reasons, such as building a strong payment history, paying down existing debt balances, limiting your new credit inquiries, or even having a negative report (such as a late payment) age off of your credit. If your score has gone up since you bought your vehicle, you may now be eligible for a lower rate on a refinance loan.
Your budget when you bought your car may not be the same as your budget today. Whether your other household obligations have gone up (like monthly gas bills!) or your income has gone down, you may need to adjust your auto loan obligation.
In this case, a refinance would be necessary. Refinancing your loan into a new loan with a lower interest rate and/or a longer loan term could help reduce that monthly payment amount so that you can manage a comfortable budget.
Buying a vehicle with a cosigner can be necessary in some cases, allowing a buyer to take out a loan for which they may not qualify on their own. Even if you qualify for an auto loan, though, adding a creditworthy co-borrower (also known as a cosigner) can be beneficial.
Having a second borrower on your loan can sometimes unlock lower interest rates, better loan terms, or open the door to additional borrowers.
Lenders generally allow borrowers to make additional payments on their auto loans, which can help them reduce their overall interest charges and pay off the loan faster. However, if you want to ensure that you get out of debt sooner, you can also refinance your loan into a shorter term.
Depending on whether your interest rate drops, you may or may not have a higher monthly payment obligation with a shorter loan term. However, shorter terms often come with lower interest rates, and you’ll be out of debt faster than before.
Regardless of which goal you have going into your refinance loan, it’s important to note that there can be multiple benefits. If you’re looking to lower your interest rate, you may find that your monthly payment also drops. Or, depending on your credit score and what you qualify for, you could remove a co-borrower, lower your rate, and snag a shorter loan term… all in one!
Finding the best auto refinance loan can be simple, if you know where to look. Shopping around can enable you to find the best possible rates and loan terms from a variety of lenders, often without any impact to your credit score. That way, you’re sure to lock in an affordable loan that keeps your car (and your budget) on the right road!
Fiona makes it easy to browse personalized auto loan refinance offers from various lenders, all in one place. It’s free to check your options and won’t affect your credit!
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