Refinancing a car loan is the act of taking up a brand-new loan with a new lender to pay off an already existing car loan. The new loan should have better terms of payment, lower interest rates and a repayment period that that does make it more expensive than the original loan.
The main motivation why people choose to refinance their car loans is to save money. They, therefore, go for a lender who will offer them lower interest rates which will decrease the payment period ultimately freeing up money that could otherwise be held.
Others find a lender who will offer them good interest rates, extend their repayment period ultimately lowering the monthly installments without increasing t6he amount they would have paid if still paying the original car loan.
Knowing the most appropriate time to refinance your car loan is critical because, when executed right will certainly save you a substantial sum of cash and at the same time, offer you a better loan repayment period and terms.
Here are instances when you should consider refinancing your car loan.
1. Loan Rates Have Decreased
One of the most appropriate times to refinance your car loan is when the market rates have fallen. Falling of the interest rates in the market by even a small percentage of between one and two percentage would lead to a significant saving if timely executed.
When you find a lender willing to offer you a lower interest rate for your car loan, then it is the perfect time to refinance that loan. The new lender will offer you a brand-new loan with better terms and better repayment plans.
2. When You Have an Improved Credit Score
Auto lenders sort application by credit tiers, the APR the lenders offers you is largely dependent on whichever credit tier you fall under. If your credit score is 699 and below, you are most likely to receive a higher interest rate, but when it’s 700 and above, you fall on a higher tier meaning that the4 lender will offer you reduced interest rates.
3. When You Want to Change Your Lender
Dealerships offer you high interest rates on their car loans as compared to financial institutions. Refinancing a car loan that you had taken through a dealership through a financial institution that you are already in business with saves you money by decreasing your interest rates and other terms of repayment.
4. When You Want to Lower Your Monthly Installments
If your monthly installments are making it harder to balance and manage your checkbook, then it’s time to refinance that car loan. Refinancing your car loan for a longer repayment period will lower your monthly installments until your financial situation gets better.
5. When You Are Underwater on Your Car Loan
Refinancing an upside-down vehicle may not be the best financial decision, but it’s worth it in the long term. Refinancing adds to the cost of the original loan and may even increase your monthly installment but refinancing means that you will no longer be underwater with that loan.
The best way to get out of that loan is to pay up the difference in cash and then refinance the loan when it is not upside down.
Is Refinancing Your Car Loan Worth It?
The primary goal of refinancing, according to Lantern by SoFi,” is to secure a new loan with better rates or terms than the previous loan”. Refinancing your car with Lantern is worth it because it will save you money and reduce pressure on your loan repayment.