6 Reasons Refinancing Your Auto Loan is the Right Move
Refinancing your car loan is the process of taking out a new auto loan with more favorable terms. It can be a smart financial move if you time it right. Here’s a comprehensive breakdown of six situations where refinancing your auto loan makes total sense:
- Your Credit Score Has Improved
So, you made all your monthly payments on time in the past 9-12 months and kept the old accounts open. Now is the time to reap the benefits. If your credit score has improved since you first financed your car, refinancing can help you secure a lower interest rate.
A credit score is a numerical representation of your creditworthiness. A higher credit score makes you a low-risk borrower, giving lenders confidence to offer better terms.
- Interest Rates Have Gone Down
Interest rates fluctuate due to a myriad of reasons, such as central bank policy changes, inflation, and overall market conditions. If interest rates have gone down since you acquired your initial car loan, refinancing is the right move.
Even a small drop in interest rate, such as 8% to 5%, can lead to substantial savings. You can also pay off the loan a lot quicker.
- You Want to Switch to a Different Lender
Acquiring your first-ever car loan is difficult. How do I check the credibility of a lender? What’s the standard interest rate? What’s the Annual Percentage Rate (APR)? How do I compare quotes? Endless questions swirl through your mind. Unfortunately, many people end up choosing an unreliable lender.
If this sounds relatable, auto loan refinance gives you an opportunity to shop around and find a lender that offers transparent policies. A trustworthy lender like RefiJet will:
- Clearly explain loan terms, such as interest rates and monthly payments
- Offer competitive rates
- Answer any questions you might have
- You Want Lower Monthly Payments
If managing monthly expenses has become difficult due to loan payments, something needs to change. Refinancing and switching to a low-interest auto loan can offer relief. It will give you some breathing room, so you can pay for other things, such as mortgage bills or home repairs.
You can also increase the loan term for comfortable monthly payments.
- You Want to Remove or Add a Co-borrower
Adding a co-borrower to an auto loan agreement is pretty common, especially when you don’t have a good credit score. But now that your credit score has improved, you can take full responsibility for your car loan. Refinancing allows you to remove a co-borrower with minimal hassle.
On the flip side, adding someone with a better score can help you acquire better interest rates. You can also get flexibility in the loan term.
- You Want Cash Back
Some lenders offer a cash-out auto refinance loan, which gives you a portion of your vehicle’s equity as cash. Here’s how it works: If you owe less than you’ve paid into your vehicle, you may be able to take out cashback on your car’s equity. This can be used for emergency payments.
