Access to a vehicle is an absolute necessity. It’s a privilege that many Americans cannot live without. When is it a good opportunity to refinance car loans? Perhaps you want your monthly payments to be easier. That’s an excellent answer. There are still a few things to remember. Before you decide on the route that suits you best, make sure you understand how refinancing a car works.
How Is Refinancing Your Car Done?
Refinancing your car is not unlike refinancing your house. You’re getting a car loan to replace your current one. Here are the key factors to consider when refinancing your car.
- Make sure you have strong credit. Check your credit file once a month to identify errors that may affect your credit score. If you have any, fix them. Find items that you can afford to pay down, or get rid of, especially collections. The most important factor lenders use to judge your ability to repay debts is your credit score. It’s calculated from information about your credit history such as credit history length, debt levels, and payment history. You can get your credit score completely free at Discover once every month.
- Calculate the loan-to-value (LTV), the ratio for your car. Cars, unlike homes, do not appreciate in their value. To refinance your vehicle, you’ll need equity. To begin, you need to determine what your car is worth and whether you have equity in it. If you are upside down on your loan that means your car owes more than its actual value. You can search the web for your car’s current worth on sites.
- Look around to find the best loan rates. So you get the best interest rates and repayment terms, it’s important to shop around. You can easily compare offers online by using your favorite search engines. Do not ignore the fact that you might be paying more for your loan than you need.
When Can You Refinance Your Auto Loan?
It is the best time to refinance car loans when one of these three scenarios occurs:
- Your credit score could be improving since you bought your vehicle. This may signal that it’s time for you to refinance. Your credit score matters. The lower the interest rate on your auto loans, the better terms you will get for car refinance.
You may get lower interest rates and have more of the monthly payment goes toward principal, rather than interest. Refinancing to get a lower-interest-rate rate can save you thousands or hundreds of dollars per year.
A car refinance calculator can help you determine how much you could be saving over the new term of your car loan if it is refinanced.
- Refinance may be an option when you need to decrease your monthly payments. Refinancing may allow you to lower your monthly payment.
This could give you more income to spend on other monthly costs. Use a car refinance calculator for monthly savings.
Even if your numbers are good, don’t refinance to a loan with a higher or less favorable interest rate. Make sure you thoroughly research the process, as well as the actual costs involved in refinancing.
- If your dealer is financing your vehicle, you might not have received the best possible interest rate. Find better deals, find one and refinance the car loan. It may be worth looking at a financial institution with whom you already have a relationship. If the bank doesn’t offer auto-refinance or you don’t have enough, your best option is your local credit union.