Refinancing your auto loan is a great way to get a better deal on your vehicle, whether you want to lower your interest rate or shorten the length of your loan. But before you jump in with both feet, there are several important factors to consider before refinancing your auto loan:
Your Existing Interest Rate
Your existing interest rate is the first thing to consider when refinancing your auto loan. You can save a lot of money by finding a lower interest rate, so it’s important to find the lowest rate you qualify for. It’s quite likely that your current lender will be able to help you do that, but it’s not guaranteed—and if they don’t offer competitive rates or decide not to refinance with them, then you may want to consider looking elsewhere.
Your credit score is a numeric representation of your creditworthiness, or how likely you are to repay loans and debts. The higher your credit score, the more willing lenders are to work with you. If you have a low credit score, it can make refinancing your auto loan less appealing to lenders.
A “car loan refinance calculator can help you estimate how much money refinancing your vehicle loan could save you” as per experts like Lantern by SoFi. So, using an auto loan refinance calculator is not a bad idea.
Your Credit Score
Your credit score is a number that indicates the creditworthiness of a consumer. If you have a high credit score, it means that you are considered to be more trustworthy and reliable when dealing with lenders. You would have better chances of getting loans at lower interest rates and higher amounts. If your credit score is low, you may find it difficult to secure a loan or refinance your auto loan in the future.
The Length of your Loan Term
The length of your loan term determines how much you will pay in interest throughout the course of your auto loan. The longer the term, the lower your monthly payment and vice versa. When deciding on a loan term, consider how long you plan on keeping your car and whether or not you’ll be able to afford larger payments at the end of shorter loans.
Several Months of On-Time Payments
You can improve your chances of being approved for refinancing by making on-time payments and keeping your credit score high. The longer you make the same monthly payment, the more stable it will become in a lender’s eye.
Also, if you’re applying for an auto refinance after having had a vehicle repossessed or defaulted on in the past few years, this could hurt your chances of approval because it indicates that you have issues managing money and bills.
Available Cash or Equity in the Vehicle
If you have cash or equity in the vehicle, a refinance can be a great option. Refinancing allows you to use your existing funds to pay off your loan and save money on interest.
It also gives you the opportunity to get a lower rate if you qualify for it. A lower interest rate could mean more savings over time because you’ll be charged less each month for your car payment and therefore pay down more of your balance over time.
In conclusion, refinancing your auto loan is a great way to save money and get better financing options. However, there are many things to consider before making any final decisions about refinancing your car.
Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.