Why refinancing your auto loan could benefit you.
Living expenses are on the rise in general, and that includes the cost of driving. The last few pandemic years have not been a great time for car shopping. That’s especially true if you needed to finance a car. If you financed a car in the past few years, you might be able to save money by refinancing an auto loan.
Here are a few cases when refinancing an auto loan might be a good idea.
1. Your payments are feeling too high.
If you’re paying $1,000 a month or more on a car payment, you might be feeling overwhelmed by debt. Refinancing an auto loan can help you secure a lower interest rate and/or a lower monthly payment.
2. Your credit has improved since you applied for your initial auto loan.
Car loan interest rates are impacted by your credit score. If you had fair or poor credit when you applied for funding but you’ve improved your credit score since then, you could qualify for a lower interest rate. Factors like paying down debt or correcting errors on your credit report can help improve your score.
3. You want a shorter repayment term.
If your monthly payment isn’t too high and you want to pay less in interest overall, you might be considering shortening your auto loan term and paying off your loan faster. Refinancing gives you the opportunity to shorten your repayment term.
4. You want to take advantage of the equity in your car.
Some lenders will allow borrowers to refinance their auto loans and take money out. It works similarly to a cash-out refinance mortgage loan. If you’re in need of money for a major expense, you could refinance an auto loan to cover your expenses.
Summary
Car prices have been sky-high the past few years, making auto loans very expensive for borrowers. You might be able to pay less in interest and lower your monthly car payments if you refinance an auto loan. Refinancing your car loan might make sense if your payments are uncomfortably high or hard to afford, your credit has improved since you applied, you want to pay off your loan faster, or you want to take out a loan on the equity you’ve built in your car.