If you’re considering refinancing your car loan, you might be hoping to lower the monthly payment. This could mean that you’ll end up with more money in the bank over the life of the loan. There are several factors to consider before you decide to refinance.
According to Lantern by SoFi, “When you apply to refinance a car loan, your goal is likely to secure a new loan with better rates or terms.” Some lenders won’t allow you to refinance your car loan until it’s been open for at least six months. Others won’t let you do so until the car’s previous owner or manufacturer gives their approval. This can be a long process, depending on your situation.
Tips to Help You Decide Whether to Refinance or Not
1. Refinancing Requirements
Before you consider a car loan refinance, make sure that you thoroughly understand the requirements of the lender or bank. For instance, if you have a car loan that’s worth over $7,000 and the vehicle is less than ten years old, refinance with SoFi is an option for you. A free auto loan refinance calculator can help you determine if this process can save you money.
2. Prepayment Penalties
If you’re currently facing a prepayment penalty, it’s important to check if potential lenders don’t have these penalties. If the amount that you could save by refinancing exceeds the penalty, then it’s a good idea to take the plunge.
3. Interest Rates
If the interest rate that you’re currently paying is significantly higher than the one that you’re currently able to get, then it’s an ideal time to consider a car loan refinance. Use an auto loan calculator to see how much you could save at a lower rate.
4. Your Credit and Income
If you’re having a hard time making timely payments and have a poor credit score, then you must improve your credit score. This might get you a lower interest rate and secure a better deal. If you have been able to improve your credit since you took out your original car loan, refinancing might be able to secure you a better interest rate and save you money.
Your income and budget should be factored in when considering refinancing your car loan. If you are able to secure a smaller monthly payment, it could ease your financial situation and leave you extra money in your bank account each month that could go towards other bills.
5. Time Left on Loan
The monthly payments can be reduced by extending the term of your loan. However, this can also increase the amount of interest that you’ll pay in the long run. If you can’t make payments on time, a lower interest rate in the shorter term could be beneficial. Just be sure the extra money you will pay overall will be worth the savings in the short term.
The choice to refinance your auto loan is a personal one. Thoroughly weigh the pros and cons and look at multiple offers before you make your decision.