Whether or not you’ve been car shopping recently, you’ve probably heard how expensive buying a car has become. With used cars nowadays going for nearly as much as new, even the current low interest rates might not make upgrading worth the hassle.
However, refinancing your current car loan can be a smart, painless way to lower your monthly payments and free up some cash, or even pay off your car sooner.
What is refinancing and how can it save me money?
Refinancing your auto loan means taking on a new loan to pay off the balance of your current auto loan. Like your original auto loan, this loan is secured by your car and paid off in fixed monthly payments over the agreed-upon period of time.
There are a number of ways refinancing your auto loan can save you money, and the most obvious one is securing a lower interest rate. Car loan rates at AgFed are incredibly low, right now, and a lower rate means lower payments and less interest paid over the life of your loan. It just makes sense.
Another method of refinancing that can help reduce your monthly payments is to extend your loan term, making your monthly payments easier to manage. Just be aware that by extending your loan term, you might end up paying more interest in the long run.
Or, you could shorten the loan term, pay about the same or a little more, and pay off your car months sooner.
When should I refinance my auto loan?
As with most financial decisions, there are a lot of factors to consider. If any of these following are true, it could be worth your time to learn more about the process.
The first big sign is that interest rates have dropped since you took out your original loan, or maybe even dropped significantly. Interest rates change regularly, and even a drop of 2 or more percentage points can add up to big savings over the life of the loan.
It’s also possible that you just didn’t get the best rate available to you when you took out the loan. If you were shopping around afterwards, you might have found other lenders with better offers. It’s always worth another look.
Another big sign that it could be time to refinance is if your financial situation has improved. If your credit health has increased, or your debt-to-income ratio has decreased, it could help you get a lower interest rate. Or maybe you could choose to pay a little more each month and pay off the loan sooner.
Finally, even without a substantially better rate, you might consider refinancing your auto loan if you’re just having trouble keeping up with monthly expenses. If you’re able to extend the loan term you can lower your payments, but you’ll be making payments longer. This won’t be the best fit for everyone, but it can offer you some breathing room going forward.
When should I hold off on refinancing my auto loan?
There are certainly some times when refinancing your auto loan might not be the best financial decision for you. We recommend refinancing as a way to save money, but if one of the situations below applies to you, you might want to pause and reconsider.
First off, if you’ve already paid off most of your loan amount, make sure you do the math before refinancing. You might be looking at less savings than you expected, even with a lower interest rate. Make sure you compare what you’re currently paying to your expected payments.
Secondly, take the fees into consideration. Depending on your existing lender, there might be prepayment penalties for paying off your loan balance early.
Another potential pitfall is if your car is older, or has a significant number of miles on it. Make sure you check these limitations before going through the process of filling out the application.
Finally, if you’re looking to apply for more credit in the near future, you need to be aware of how refinancing can affect your credit. Remember, refinancing means you’re opening up a new loan with no repayment history. Refinancing an auto loan can leave you with a temporarily reduced credit score, so y
How do I get started?
You’re going to need a few things, including: personal information, proof of income, evidence of auto insurance, and information on your car and your current car loan. Once you are ready, you can apply for an auto refinance loan, which you will use to pay off your existing auto loan.
Interested in refinancing? Contact AgFed to get started! We also have handy loan calculators on our website to help you run the numbers.