When it comes to car loans, timing is everything. You want to make sure you’re getting the best interest rate possible, which means waiting until the right time to refinance your car. So how long should you wait? That depends on a few factors.
The first thing you need to consider is the interest rate on your car loan. If rates have gone down since you initially financed your car, it might be a good idea to refinance. On the other hand, if rates have gone up, you might want to wait until they go back down before you refinance.
It would help to consider how long you plan to keep the car. If you plan to trade it in or sell it within a few years, you might not save enough money to make refinancing worth your while.
Another thing to consider is the fees associated with refinancing. Some lenders charge a prepayment penalty if you pay off your loan early, which could offset any savings you’d get from refinancing. You should also compare the terms of your new loan to the terms of your old loan. For example, if you’re extending the length of your loan, you might pay more in interest over the life of the loan.
As you can see, knowing how long to wait before refinancing your car loan can be a headache. So, in this article, we’ll give you a few tips to help you make the right decision.
Why Should I Refinance My Car Loan
Many people choose to finance the purchase through a loan when buying a car. This means making monthly payments to the lender until the loan is paid off. However, sometimes circumstances change, and it makes sense to refinance the loan. Here are some reasons why you might want to refinance your car loan:
Pros Of Refinancing A Car Loan
- You can get a lower rate and a lower monthly payment: This can save you money over the life of the loan.
- You can shorten your current loan term: This will save you money in interest payments and mean that you’ll pay off the loan sooner.
- You can get cash out: If you have equity in your car, you can refinance for more than you owe and use the extra money for something else.
- You can consolidate debt: If you have other obligations, you can refinance your car loan and use the extra cash to pay off those debts.
- You can switch from an adjustable-rate loan to a fixed-rate loan: This option lowers your interest rate to help you lock in a lower interest rate if interest rates have dropped.
Cons Of Refinancing A Car Loan
Of course, there are also some drawbacks to refinancing a car loan. These include:
- You may have to pay fees: Some lenders charge application, origination, or prepayment penalties.
- Your credit score may temporarily go down: When you apply for a new loan, the new lender will make a hard inquiry on your credit, which can lower your score by a few points.
- You could end up paying more in interest: If you extend the loan term when you refinance, you could end up paying more in interest even with a better rate.
- You could end up upside down: If you refinance for more than your car is worth, you’ll be upside down on the loan, which means you’ll owe more than the car is worth. This can make it difficult to sell or trade in the car as you would have to pay the difference to the lender.
How To Know If You’re Eligible To Refinance Your Car Loan
If you’re thinking about refinancing your original loan, it’s important to know if you’re eligible. Of course, the most crucial factor is your credit score. You’ll need a score of at least 620 to qualify for most refinance loans.
Lenders consider other factors, including your income, debt-to-income ratio, and current interest rates. If you can show that you’re a low-risk borrower, you’ll have a better chance of being approved for a refinance loan.
Contact a lender for more information if you’re not sure whether you’re eligible or want to learn more about the refinancing process. You can also use Bankrate’s tool to get the best auto loan rate possible. The tool will allow you to enter your loan type, loan term, credit score, and zip to compare the best rates available to you.
What Steps to Take Before You Refinance Your Car Loan
Before you refinance your car loan, you should do a few things to make sure the process goes as smoothly as possible. These steps include:
- Check your credit score: As mentioned above, your credit score is one of the most important factors lenders consider when applying for a refinance loan. Therefore, make sure your score is as high as possible before applying.
- Shop around: Compare rates from multiple lenders to ensure you’re getting the best deal possible.
- Know your loan terms: Make sure you understand all the terms of your loan, including the interest rate, monthly payments, and fees.
- Calculate the costs: Refinancing a car loan can cost money in fees and may affect your credit score. Make sure you do the math to see if refinancing makes sense for you. You can use this tool on Bank Of America to see if refinancing makes sense for you.
- Reach out to refinancing companies: If you’re still unsure whether refinancing your car loan is the right move for you, reach out to a refinancing company. These companies specialize in helping people refinance their loans, and they can help you understand the process and compare rates from multiple lenders. A few reputable refinancing companies include LendingTree, Bankrate, and MyAutoLoan. You can also check with your current lender to see if they offer refinancing options.
- Choose a lender: Once you have reached out to various refinancing companies, choose the lender with the best rate and terms that meet your needs. Once you’ve found a lender, fill out an application and provide any required documentation.
What To Do If You Can’t Get Approved For A Car Loan Refinance
If you’re having trouble getting approved for a car loan refinance, you can do a few things. First, you can ask your lender why you didn’t get approved. They should be able to give you feedback on what areas you need to improve.
Some reasons you won’t get approved are having too much debt, not enough income, or a history of late payments. You also may get denied if you’re upside down on your loan, which means you owe more than the car is worth. If you’re upside down on your loan, you can try to find a lender who offers refinancing for upside-down loans.
Some lenders also won’t allow you to refinance your loan if your car is too old. To qualify for a loan, some lenders set restrictions on the age of the automobile. They also may be hesitant to offer to refinance if you just bought your car. Lenders like to see a history of on-time payments, so it may be difficult to get approved if you’re new to car ownership. Therefore, try to have your loan for at least 6 months before refinancing to maximize your odds of being accepted.
If your lender can’t help you, try reaching out to a credit union or credit counseling agency. Similar to a financial institution, they may be able to help you get your finances in order so you can qualify for refinancing.
Another option is to get a co-signer with good credit. A co-signer may help you get approved or get a better interest rate and terms. A co-signer can be your spouse, a family member, or a close friend. Later on, they can also be removed from the loan if you make all of your payments on time.
Refinancing a car loan can be a good idea, but you should understand the terms of the loan and compare rates from multiple lenders. You should also consider the costs of refinancing, such as fees, and whether it will affect your credit score. If you’re having trouble getting approved for a car loan refinance, try reaching out to a credit union or credit counseling agency. You can also get a co-signer with good credit to help you get approved or get a better interest rate and terms.