Why You Should Consider Refinancing Your Car Loan
Updated Dec. 31, 2021
The thrill of buying a vehicle can sometimes distract you from the final cost of the purchase, this includes the total amount you will pay in interest. You may be asking yourself if it is really worth the trouble to refinance a car loan. The truth of the matter is there is no simple answer. Auto refinance is not the right solution for everyone. If you feel like you made a financial mistake when you purchased your vehicle, refinancing your auto loan may be an excellent option. If you aren’t familiar with refinancing, this involves taking out a new loan in order to pay off the balance of an existing loan.
So why might you consider refinancing your car? To save money of course! When you refinance you might be able to lower your monthly payments and even your interest rate. Thus, you can free up your hard earned cash to spend how you like. You could put some of the money you saved towards your car payment and pay it off quicker or even take that trip you’ve always wanted to take! Below we will discuss the reasons why you should consider refinancing your car and how it could benefit you.
Why Refinancing Your Car Loan Could Help
Interest Rates
Interest rates on consumer loans fluctuate quite often. The good news is that you can keep a close eye on rates and wait for them to drop. There’s a possibility interest rates have dropped since you’ve applied for an auto loan, which means you may qualify for a lower rate that could save you a considerable amount over the period of your loan. The only problem in waiting for interest rates to fall is the fact that interest rates are hard to predict. Further, if car loan interest rates are high, it should not discourage you from refinancing an auto loan. Especially if your credit score or finances have improved since you were approved for vehicle financing.
Credit Score
If you have improved your credit score since you applied for auto financing, you may qualify for a lower auto loan rate. If you have since resolved your credit-related problems and improved your score, it is highly likely you will qualify for a lower rate. We all know a lower interest rate means more money back in your pocket. Launch works diligently to help our members map out ways to increase their credit score. We even have resources to learn how to build credit from scratch. Thus, it would be in your best interest to work on improving your credit score for future purchases.
Monthly Payments
If you’re having issues keeping up with your monthly bills you could extend your loan. For instance, if you had a 24 month or 36 month term you could refinance your loan to extend it to 48 months. While you will pay less monthly, long term you will end up paying more in interest. It is best to only use this option if you have fallen behind and have an established financial plan set up. For example, you could put more towards your auto loan later down the road once you get out of a financial rut.
Unhappy With Lender
If you are unhappy with the service you are receiving from your auto lender, refinancing may be the perfect solution. Having a trusted financial partner that has your best interest in mind is vital to your success.
Situations Not To Refinance
1. Associated Fees
When refinancing you have to be cautious to look for any fees associated with this process. There aren’t always fees associated with auto refinancing, but it is important to read the fine print to uncover any hidden costs. Re-registration fees should also be considered though they aren’t too expensive. Nonetheless, they are something to keep in mind when weighing your benefits.
2. Time Left On Loan
If you have already paid off most of your loan it would not make financial sense to refinance. Often, it’s best to refinance sooner rather than later. This is due to the way the interest works. You end up paying off more at the beginning. Therefore, the sooner you refinance an auto loan, the better off you will be.
Final Thoughts
As you can see there are many instances when refinancing a car loan makes sense. Refinancing your car loan is a big decision, and is one that needs to be decided on a case-by-case basis. If your credit score and financial position has improved since applying for a car loan, chances are an auto refinance will help you save money each month. Launch CU is here to help. We offer extremely competitive auto refinancing rates, along with monthly payments you can afford.
