Should I Refinance My Car Loan?
What do you think of when you hear the word “refinance”? While refinancing is often associated with houses and mortgages, most loans can be refinanced. Even if you don’t own a home, car loans are something you’re probably familiar with. And unlike mortgage refinancing, refinancing a car is relatively quick. If you’ve considered other debt management options like consolidating debt, it’s time to think about refinancing your auto loan.
WHAT DOES IT MEAN TO REFINANCE YOUR CAR?
Before you decide if it’s right for you, it’s probably good to know what it is first! Refinancing a car means replacing your existing auto loan with a new loan with more beneficial terms based on your current financial situation and needs. You may be able to refinance an auto loan with your current lender, or you can choose a new lender to see if they offer better terms, like a lower interest rate or more manageable monthly payments.
WHY REFINANCE A CAR LOAN?
There are two main reasons to consider refinancing your car – you want to pay less money over time, or you want to pay less money each month.
PAY LESS OVER TIME
If you’re trying to pay less money over time, you’ll want to renegotiate your interest rates with a refinanced loan. Remember that you’ll only pay less if you can get a lower interest rate for the same time period, because if you extend your loan that could mean you actually end up paying more over time. You could get a better interest rate for a few different reasons:
- Economic factors have led to an overall lowering of interest rates
- Your credit score has improved since you took out the original loan
- You’re considering a new lender who offers better interest rates than your original lender
PAY LESS EACH MONTH
You can also change the terms of your car loan to pay less each month by extending the length of your loan. This could help if you’re having a hard time making monthly payments and could benefit from the extra money each month. While refinancing your car could be beneficial here, remember that this will likely lead to you paying more money for your car in the long run. As you work to make your decision, make sure to calculate how much you’ll be paying overall to see if the higher total cost is worth lower monthly payments.
Refinancing a car won’t always be the right decision for you. But if interest rates can be negotiated in your favor, auto loan refinance could save you money over time – and get you on the road to your next savings goal.