Refinancing restarts your car loan – but it’s not a full reset button. By refinance your loan you sign new loan terms and rates in an effort to save you money. But choosing to refinance is not a quick fix to a larger financial problem.
How much refinancing raises your car loan
If you decide that refinancing your loan is the best financial option for you, you need to remember that it’s not a complete fresh start. On the contrary, the new conditions proposed will facilitate the repayment of your loan.
How refinancing affects the term of your loan
The most common terms drivers encounter when financing a vehicle range from 24 to 84 months. The longer your term, the lower your monthly cost will be. But the life of your loan will be extended. That means you could be stuck with the same vehicle for seven years.
When refinancing your loan, the length of the term is probably what you will primarily adjust. Although you can also get a different interest rate, the change in term will be in the foreground. The term can be shortened or lengthened – and the right choice depends on a few factors. To best determine the ideal length of your mandate, take advantage of a auto loan refinance calculator to find the one that will best balance the money saved and the monthly payments you can afford.
When refinancing your car loan is a good idea
There are a few main scenarios where it is a good idea to refinance your car loan.
The first is if you are having trouble paying your monthly payment. By refinancing, and therefore reworking your current loan, you can potentially give yourself more time to pay off the cost of the vehicle. But you might be able request a loan modification from your current lender without refinancing. Don’t refinance if the terms you would get are no better than what you might get if you stuck with your loan as it is.
Another situation where refinancing is the right way to go is if your credit has improved since you originally got your loan. Better credit will mean more favorable terms. This is especially true if you originally financed through a car dealership.
How to refinance your car loan
If you determine that refinancing is right for you, the steps think about your current loan and organizing the paperwork for your new loan application.
- Review your current loan. Find the interest rate, repayment amount, months remaining, and information about fees or penalties.
- Check your credit. Make sure your credit score is good enough to get a decent rate. Check your credit report for errors at the same time.
- Compare lenders. Don’t go with the first lender that offers a decent rate. Review several of them, including their eligibility criteria, penalties, and the rates and conditions for which you are prequalified.
- Apply for refinancing. Once you’ve chosen a lender, apply online or in person.
The bottom line
Refinancing your car loan does not start it all over again. But it can go down your interest rate and save you money on a monthly basis. Consider the risks of refinancing and research other ways to save money before you sign a new loan application.