Think that refinancing a car loan is a complicated process? It’s not. Many people believe that it is an overly difficult and drawn out process like remortgaging a house. This is not the case. In refinancing a car loan because of changes in your financial situation Both the criteria and application process are considerably less involved than the steps needed in refinancing a home. Automobile refinancing could save you a significant amount of money on interest in the long run
Should you refinance your car loan? Here is are some things to help you decide.
When should you refinance your car loan?
Restructuring the loan car or truck is an opportunity to save money, but some conditions must be met to be eligible, and there are a few things to keep in mind before deciding to contact us to look at refinancing your vehicle loan.
1. First and foremost, have your situation improved and credit score both improved? Originally if your credit score was low when you got the car loan, then your interest rate was probably very high.
Refinancing once your credit score has improved not only will allow you to get a lower interest rate but should also lower your monthly payment.
2. Next, review the terms of your loan. Get familiar with the loan; know what you’re paying each month and how many payments are remaining. Knowing these details can help you during our refinancing process.
3. You’ll need to find out if your loan qualifies for refinancing. Every lender we work with has specific requirements, and these vary but here are some general rules to keep in mind.
- Your car should be less than seven years old.
- You should have a significant amount left remaining (more than $7,500).
- This vehicle can’t be used for commercial purposes.
- This can’t have a salvage title or be a rebuild (which means it can’t be seriously damaged).
- Some lenders and banks in Canada won’t refinance certain makes or models of cars.
4. Determine if your current interest rate is higher than the current average that people pay today. Interest rates fluctuate with the marketing and the interest rate directly affects your payment each month. Lower interest rate, more money in your pocket.
5. Do you have an extended term car loan? A car loan with a 5-8 year repayment term might be a good option. If you were a payment buyer, you were probably only focused on the monthly payment and probably don’t realize how much of that amount is in interest. If you took a longer-term loan (5-8 years), then more interest is being paid to your lender, even if you think you have a low monthly payment. Refinancing to get a shorter term reduces the amount of interest that you pay and long term will save you money.
When to avoid refinancing your car loan?
Refinancing can be smart and an intelligent way to save some money, and help improves your overall credit history. However, it is not always the best idea for certain loans and situation.
1. It will be a bad idea to refinance if the current loan that you have has a large prepayment penalty. You would usually see this if your went with in-house financing from a car dealership and it means that trying to accelerate your payments to pay off your loan early will result in a fee to cover their lost profit in interest.
2. Refinancing can be a great option but keep in mind it also extends the length of your car loan, meaning you’ll be making payments for a longer period than with your original loan. If possible, try to avoid refinancing terms that will extend your payment period. However everyone’s situation is different, and if you are at risk of missing monthly payments on because they are too expensive, then refinancing can seem like a good idea. Always remember that when you refinance, monthly payments might decrease, but you may end up paying more because you have extended the length of the loan.
That lays out the pros and cons of refinancing auto loans. Keep in mind that if choosing to refinance your car loan, do your research first and have a good understanding of the ins and outs of your loan, that way you’ll be prepared, and there won’t be any surprises.
When working with 360 Approved our credit advisors can help you navigate all this in much greater detail laying out all your options so you can decide whether of not a refinanced car loan is best for you. Connect with us today.