Concerns about your auto loans may arise if you’ve purchased a vehicle in less than five-to-seven years. Refinancing your car loan may be a viable option due to fluctuating interest rates, or changes in your personal finances. A new loan may be possible:
- Lower your interest rate
- Let you pay your car off more quickly
- Lower your monthly payment
Maybe your income is higher and you wish to pay off your vehicle financing sooner than it ends. Maybe your credit score has increased and you qualify to get a lower rate. You may just wish to reevaluate what options you have.
No matter your reasons, timing is important. To help you make the right choice, we have provided information about the pros and cons of refinancing at different times during your loan period.
Before refinancing your car loan, it’s important to consider all of the potential implications. Our auto refinance calculator can help you determine if refinancing is the right move for you.
Benefits of Refinancing Immediately After the First Year
If you need a new vehicle and don’t want to spend too much time looking for a rate that is competitive, it may be best to settle for the first financing option available. The dealer will offer quick financing and a convenient way to buy a vehicle. However, they may not be able or willing to provide the lowest interest rates.
If you’re regretting your decision, don’t panic! You might be eligible to cancel the agreement and enter into a new one that suits you better. Sometimes, dealer financing can include hidden fees and clauses that will raise your interest after a year. You might find it in your best interest to refinance as soon as you have reviewed all the fine print from the initial financing.
If you’ve purchased a used vehicle, refinance early rather than later. Older vehicles might not be eligible for refinancing. You should therefore get a new loan before the time is too soon. The interest rate for new cars is generally lower than that for used vehicles, even if they were purchased new.
Should You Wait for a Little While?
You will probably be able to understand the impact of your car payments on your monthly budget within a year. Your credit score or financial standing could have changed significantly over this period. Do you have a lower credit score than you had when you bought a car? These aren’t your only options. UStoday estimates that more than 20% of all new car loans are given to subprime customers.
Some actions can have a significant and positive effect on your credit rating:
- Repayment of large credit cards balances
- Correcting an error in your credit report
- Negative items may age out of your report
How to Increase Your Credit Limit?
Refinancing within a one-to-2 years of your original financing agreement gives you ample time to search for a lower rate, lower monthly payments, or extend your loan term. Refinancing does not require you to extend the loan term. You may be able to refinance your loan after three years if it is a five-year-old loan.
Is Refinancing Still Worthwhile?
Even if you are nearing the end of your loan term, refinancing may still be an option. There may be an event that forces you to change the term or monthly rate. You may be able to reduce your monthly payments as a result. Your current lender might be difficult to work with. Their representatives can be difficult to reach and difficult to communicate.