Whether or not you should refinance your car loan comes down to one thing: do you want to save money on monthly payments? Be careful, though, refinancing isn’t always the best option, especially if your credit isn’t the best.
Why Are You Considering Refinancing?
When you refinance an auto loan, you’re replacing your existing loan with a new one, often from a different lender. In most cases, the main goal of refinancing is to lower your monthly payment, which can be accomplished in one of two ways: a lower interest rate or a longer loan term.
Both of these methods can lower your monthly payment, but only one actually saves you money in the long run. If you stretch your loan term without getting a lower interest rate, all you’re doing is paying less each month while spending more in interest charges.
Let’s look more deeply into why you might consider refinancing your car loan:
- Reduce your monthly payment – If you took out a loan with a high interest rate, it’s a good bet that your monthly payment is higher than you’d like it to be. It’s common for people to refinance in order to reduce loan payments. If this is the case because you’re a bad credit borrower, you may only qualify for a lower payment if you extend your loan term.
- Your credit has improved – If your credit score has gone up, you may be able to qualify for a lower interest rate on your auto loan. This option isn’t available to everyone and depends on your credit score and on what a lender is willing to offer you. Typically, in order to qualify for a lower interest rate, your loan payments must have stayed current for at least 12 months.
If there are other reasons you’re considering refinancing, you should look closely at your situation. For example, if you want a shorter loan term, there’s no reason for you to refinance. You can simply make larger payments in order to pay your loan off faster.
Qualifying for Refinancing
Before you consider refinancing, make sure that it’s even possible in your situation. Both you and your vehicle have to qualify. Just like in the initial lending process, there are many conditions to refinancing:
- You need a qualifying credit score – In order to qualify for refinancing, you have to have a good or improved credit score, especially if you originally took out a bad credit car loan.
- Have an acceptable loan amount – All lenders have their own acceptable range that a loan must fall under. Your current loan provider is sometimes able to help, but a new lender is typically used when refinancing.
- Your vehicle must qualify – Your car has to be within the lenders acceptable age and mileage limits in order to be eligible to refinance.
- Enough time has to have passed – In order to refinance, you generally have to have had your loan for at least a year, but the longer the better.
- Your loan must be current – If you’re considering refinancing because you’re having trouble keeping up with your loan to the point that you’ve fallen behind on payments, you aren’t going to qualify. You have to be current on your loan in order to refinance.
- Your vehicle has to have equity – Refinancing isn’t possible if your car is underwater, meaning it’s worth less than your current loan balance.
Find a Lender That Can Help
Now that you know when to consider refinancing and what it takes to qualify, you need a lender that’s able to approve you. If you want to get started, our refinancing partner can help you view and compare offers online.
If you’ve decided that refinancing isn’t the way to go but you still need to save money on your auto loan, Auto Credit Express can help. We work with a large network of special finance dealerships, and we can work to match you with one in your area.
Don’t waste time and money searching for the right dealer on your own, let us help simplify the process for you. To get started right now, simply fill out our fast and free car loan request form.