Years ago I made arrangements to refinance my auto loan. There were pros and cons to it which I wish I had known about before I signed the paperwork. I wanted lower car payments so I made the leap without all the information I could have gathered if I did more homework. My interest rate was lower but it added a year to my loan. I ended up paying more than if I had kept my old loan. If you are thinking about refinancing your car loan keep reading to get more insight into the process and what you should consider.
Is it a Good Idea to Refinance Your Auto Loan?
What does it mean to refinance your car? It means that you can get a new loan with lower interest rate and have a new payment amount. This is great if you got a loan one that was initially at high interest. Now you are in a position because your credit has improved to get a loan that’s a lower interest rate.
What are some of the factors that are included when you are ready to refinance your car?
Your Credit Report or Score
If your credit score was not the best when you bought your car you may have a higher interest rate than you wanted. But now things have changed. You’ve cleaned up your credit, you have payment history, and a few things have dropped off your report. With an increased credit score you may qualify for a lower interest rate. Refinancing may be a good option for you.
Your Financial Institution Refinancing Guidelines
If you decide you want to refinance, it may be tempting to use your current finance company. Before you do that, do a little shopping around to see if you can get a better rate than what your finance company is quoting you. Keep in mind the criteria may be different for each company. If you want to increase your odds of getting a better loan with better terms without all the running around check out rateGenius. They have a nationwide network of over 150 lenders who compete to get you the best rate.
Time Remaining on Your Car Loan
Another factor to consider when you are thinking about refinancing is the time remaining on your loan. If you have over three years left it might be a good idea to refinance. However, if you have less than three years then it might be wise to just stick with your payments, pay on the principle to pay it down faster, or pay it in a lump sum. Refinancing at this stage may add more time and money to the end of your loan.
Value of Your Car
How much is the car worth? Financial companies look at this when they are considering whether to refinance your car loan or not. If you are upside down on your loan; you owe more than the car is worth, then you will likely not be able to get a loan.
Refinancing your car requires good timing, improved credit score, and doing your homework. There are risks involved including adding more years and more money on the loan even if the interest rate is lower. If you are confident you have all the information to make a good decision then go ahead and refinance your car.
Samantha A. Gregory is an author, consultant, and speaker. She’s a single-mom lifestyle, money, and parenting expert featured in The Washington Post, The New York Times, Essence Magazine, HuffPost, ABC News, and Mint.com.
Samantha founded the award-winning RichSingleMomma.com™, the first online magazine featuring personal finance, parenting, and personal development content and courses for single moms.
She aims to inspire women who are ready to thrive and not just survive in their single motherhood journey. Connect with her on Instagram @richsinglemomma.
