How to Refinance Your Car at the Right Time?
Not sure if it is the right time to refinance your car loan? Time your refinancing process by understanding the current interest rates, reducing your loan term and leveraging your improved credit score. Know if the current economic scenario of the country benefits you and get ready to create huge savings by refinancing your auto loan.
Once you have already purchased a car and put the financing in place, it can be easy to forget about it and never look back. Halfway through the loan term, you may question the possibility of refinancing your car loan. It comes with plenty of benefits. For one, you could be saving a lot of money on your total auto loan amount as against your current payment plan. The trick is to align your refinancing process at the correct time in order to gain the maximum benefit from your action.
Timing the Refinancing Process: Finding the Right Time to Refinance Your Car
The following factors will help you to correctly assess the ideal situation for refinancing your car loan.
1. Your Interest Rates VS. Current Rates
Always compare your interest rate with the current market rate. In the scenario that you get qualified for an interest rate that is lower than your auto loan rate, you should refinance your loan. According to reports, the on-going auto loan rate was 4.83% in July 2018. For instance, if you get a discount of 0.50% of interest rate on your auto loan, it can save you a lot of money in the long run. Therefore, once interest rates drop, consider it as an indication of a good time to refinance your car loan.
2. Change in Auto Loan Term
If you feel you are overspending on your monthly payments and wish to reduce it, you can refinance the term of your auto loan. Take an instance where you have an auto loan of $15,000. If you had opted for a loan term of 60 months instead of 48 months, your monthly payments may be smaller but your interest rate will be high since more time means more risk for the lender. Alternatively, you can now opt to refinance your auto loan for a shorter-term period and a lower interest rate in order to pay off your debt sooner.
3. Improved Credit Score
If from the time you purchased your car, your credit score has increased then you are most likely to score a better auto refinancing deal. A good credit score will increase your personal creditworthiness and help you to obtain a lower interest rate. If you compare a 7% interest rate on a $15,000 auto loan for 6 years and a 5% interest rate on the same amount, you will be saving close to $1000 in interest amount. Thus, make use of your new and improved credit score to save dollars because your savings can come in handy during a time of need.
Drive the Decision to Refinance your Loan
Refinancing your car loan is a great way to save money by making a better deal than the current one. You will need proper documentation. Also, you will have to be vigilant in comparing different refinancing loan quotes by shopping around. Once you say yes to a lender, make sure that the new lender pays off the previous loan so that you can start making regular payments to him. But, do not make any hasty decision. Remember that timing the refinancing process of your auto loan will reap great rewards for you in the long term.
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