Borrowers often turn to refinancing to get the most bang for their buck. One of the best ways to save money and/or lower your monthly payment is by refinancing an auto loan.
When it’s the Right Time to Refinance
If you had the option to pay off your loan faster, you’d most likely take the steps to do it. Refinancing can achieve this, and you can save money at the same time. Here are two examples of when borrowers might consider refinancing:
- If you can land a lower interest rate – Whether your credit was worse when you took out the loan or overall interest rates have dropped, refinancing can allow you to get a lower APR. Most people with bad credit auto loans get a higher interest rate, but you could get a lower rate if you've improved your credit, which will help you save money.
- Financial status changed – If you’ve received a promotion or changed jobs, you can refinance to shorten the loan term in order to pay off the loan more quickly and save in interest charges. If, on the other hand, your financial situation has gone sour, you can refinance your loan and extend the term to lower your monthly payment. The downside is that, in most cases, you’ll have a longer loan and pay more in interest in the long run.
When it’s Not Time to Refinance
Refinancing comes with more pros than cons, but it won't be the right move for every borrower. Here are a few situations that aren't good for refinancing:
- You have an old car – Lenders typically carry age and mileage restrictions on the vehicles they'll refinance. Because cars depreciate over time, most lenders won’t want to refinance an older car.
- You’re upside down – If you have negative equity in your vehicle, it’ll be extremely difficult to get approved for refinancing. The same goes for borrowers who are behind on their car payments.
- You recently paid off the car – If your current vehicle is paid off, you can't refinance it with another loan. While you can take out another mortgage on a home, it isn’t the same for cars.
- You have pre-payment penalties – Depending on your current loan, you could have some auto loan pre-payment penalties. Refinancing may not make sense if these pre-payment penalties cancel out the potential savings.
Get the Financing You Need
Refinancing can be a great way to save money and get a better deal on a loan. Just make sure you understand what you're trying to accomplish when refinancing a vehicle.
If you need a car loan but have bad credit and aren’t sure where to turn, let Auto Credit Express help. With a nationwide network of special finance dealerships behind us, we can connect you to a local dealership that can tackle challenging credit situations. Get started today by filling out our auto loan request form.