After going through so much effort to secure auto financing, you probably don't want to look at another stack of paperwork for a long time! But, many experts recommend revisiting your plan down the road. Why should I refinance my car loan? Simply put, you could get a much better deal. From lower monthly costs to better interest rates, you might be surprised by the new and improved terms of your auto financing deal if you do a little research. Let's take a look at how to refinance a car loan to reap the most benefits:
What are the Perks of Refinancing?
The biggest benefit of refinancing a car is the potential annual savings that you can achieve. Here are few scenarios where refinancing is a great idea:
- Lower Interest: Interest rates are not static. They rise and fall due to a number of factors, and even if interest rates have been sky-high for a long time, keep your eyes peeled for the inevitable dip.
- Dealer-Sourced Loans: Dealership loans tend to have higher markups than other loans, like from a bank or online lender. Take a look at the other lenders to see if you can score a better deal by refinancing.
- Credit Score Changes: Maybe you bought a car when your credit was not so great, but after managing your money, you managed to move your score up. You might qualify for a better interest rate now, so consider researching your options.
- Leasing to Buy: If you've fallen in love with your lease, then you might want to buy it when your contract runs out. This can be a good time to renegotiate the terms and score a terrific deal on your car loan.
- Financial Stress: Sometimes you run into rough patches in life and you need to cut car costs as much as possible. You can refinance your car loan to get a lower payment over a longer period of time, freeing up more monthly cash flow.
What are the Drawbacks of Refinancing?
You know the perks of refinancing a car loan, but before you draw up the new paperwork, when does it make more sense to stick with your current plan instead?
- Long-Term Loan: Have you been paying off your current loan for years and years? You can get the most benefits from refinancing when you do so earlier in your repayment, so if it's been awhile, you might want to stick with what's working.
- Refinancing an Old Car: There are tons of benefits of buying used and you can save quite a bit on a pre-owned model, but refinancing is usually not considered worthwhile for the lender when the major depreciation has already occurred.
- Underwater Finances: If you owe more than the car's value, lenders are less likely to make a deal with you. It's better to regain control on your current loan than to try to negotiate new terms, which might not be favorable.