With interest rates still at record lows, it is a great time to refinance your auto loan. If you got your car loan several years ago you most likely can get a much better rate now. Refinancing your loan entails paying off your current loan and starting a new loan with a new lender. Your payments will go down due to the lower interest rate and also because you are also extending the length of the loan. Here are some things to take note of if you’re interested in refinancing.
Credit Score
If you got your original car loan when you had a less than stellar credit score you most likely did not get a good rate. If your score has improved since then (and if you’ve been making timely payments then it should have) then it is probably a good idea to refinance your auto loan since you qualify for better rates now.
Interest Rates
Currently interest rates are at historic lows. This translates into big savings. Over the life of the loan you can save about $825 (2% interest rate change, 60 months, $15,000 loan). But you can only take advantage of these low rates if you pay off your current loan and get a new loan at a lower rate.
Loan Length
If your original loan term was 36 months and you are now halfway through, you owe much less than you did when you first started. Yet your payment is still the same. If you are having a hard time making your payments, it is best to take a proactive approach and try to refinance your loan as soon as possible before you begin to miss payments. By refinancing your auto loan you are starting over again, but your payments will be manageable now. Plus if your finances return back to normal you can make extra payments and pay off your auto loan sooner if you’d like to.
