Most people know plenty of ways to save money.
They clip coupons, limit eating out, and might even restructure their mortgage.
Few, however, ever speak of refinancing their auto loan.
It may be a more reasonable option than you would think.
Compared to a house, refinancing a vehicle is relatively simple and easy.
First, let’s briefly cover in what situations you shouldn’t refinance.
When Not to Refinance
So, what would make you consider the decision to refinance your car?
Read on to know the benefits you can derive out of refinancing.
Interest Rates May Have Gone Down
Interest rates fluctuate over time.
Just look at the graph below.
It shows the average rate for a new car loan over the last three months.
As you can see, there was a big dip around late June.
Imagine the differences over three years.
Many assume that once they sign an auto loan contract, it can never be changed.
That is not the case.
If rates are lower than they were when you took out your loan, try for a better deal.
Even the smallest reduction in rate can make a huge difference in the long run.
Better rate means more savings!
You could get a better rate from another lender, or even from the one you have already.
Similarly, you can get a better rate simply by changing lenders.
Changing lenders is very simple.
If you are approved, the old lender will give you money to pay off the old one.
This gives legal ownership of the car to the new lender.
In a sense, one lender is “buying” the car from the other.
You are the middle-man.
From then on, you’ll make payments to the new lender.
You can start making payments at the new interest rate.
If possible, however, you could continue with the old one.
You’ll pay off the loan faster and pay less interest overall.
Your Credit Score Has Gone Up
Along with Reasons 1 and 2, your credit score can help you get a better rate.
This applies if your score has increased since you first took out the loan.
You could get a lower rate based on the most recent score.
A change in credit score of as little as 50 points can make a big difference in the interest rate that you are paying.Click to tweet
Your Income Has Improved
Are you making more money than you did when you took out your loan?
Perhaps you’ve gotten a better-paying job or promotion in the meantime?
That’s another reason to refinance.
You could convert a long-term loan into a short-term loan.
The result is, your monthly payments will be higher.
On the plus side, you’ll be done with it quicker and pay less interest.
You are facing financial burden
We all fall on hard times now and then.
If it’s difficult to make ends meet, refinancing your auto loan could help.
The effect is the opposite as that of refinancing for a higher income.
You will get a lower monthly payment in exchange for a longer term and higher interest.
But, this should be avoided if at all possible.
However, if you miss a payment or end up being late, that could hurt your credit score.
In that case, this is the lesser of two evils.
So stay updated and keep these points on hand!
Saving a few bucks through refinancing could really work out to your advantage!