When you purchased your car, prevailing interest rates or your credit history might have been a little different than they are today. If either of these things have changed substantially, or if other factors have made a better auto loan option available to you, weigh the options carefully. There are generally three main reasons why you would want to consider an auto refinance: lowering your interest rate, lowering your monthly payments or changing the owner listed on the loan.
Perhaps when you went in to buy your used bargain car, your credit made you a less attractive buyer to lenders than you would have hoped. All’s not lost. In the time since your car purchase, hopefully you learned your lesson and paid your bills on time, kept your credit card debt in check and acted more financially responsible in general. This could make lenders that wouldn’t consider you before, take a second look at you know. You might even consider asking your current lender if they would be willing to renegotiate the terms of your loan if you have demonstrated a history of on time payments with them. You can also apply for financing with other lenders offering lower rates than what you currently have. If you can shave a couple of percentage points off of your interest rate, this could mean saving hundreds of dollars in interest payments over the course of your loan, and would likely lower your monthly payment.
Is Refinancing Your Car Loan The Right Move?
If you’re looking to lower your monthly payment, refinancing might be an option for you. This can go one of two ways: you qualify for a better interest rate which lowers your monthly payment, or you refinance for a longer term which can also lower your monthly payment. Car loan terms from the bank can be as short as 24 months and as long as 80 months. The shorter the term, the higher the payment. Experts recommend sticking to the middle of this range and caution consumers who choose the longest terms available. While your monthly payments will be the lowest available, you can quickly become upside down on your vehicle meaning you owe more than it’s worth.
The third reason to consider refinancing is if you applied for the loan with a cosigner. Cosigners are often required if you don’t have much of a credit history or if your credit history isn’t that great. A co borrower with a great credit history will make lenders more comfortable with loaning you money since the co-borrower is also on the hook for repayment if you decide to stop paying on the loan. If you initially purchased your car with a cosigner, and have since cleaned up your act financially, or have more credit history to stand on your own two feet, you can refinance the loan to remove the cosigner placing the repayment responsibility solely on you.