In most cases, refinancing your car means a new loan with lower rates, better terms, and perhaps even a better lender, which makes it worthwhile for many people. However, the key is to know when to refinance to benefit from a more favorable agreement.
As a matter of fact, various factors go into qualifying for a more sensible auto loan, thus ultimately determining the right time for you to refinance, which we will look at next.
Key Factors that Determine the Right Time to Finance Your Auto Loan
Your Credit Score Has Increased
If when you first bought your car, a low credit score caused you to only qualify for a high-interest rate loan, then once your payment history has improved, you may consider refinancing your car to get a better rate and save money over the lifetime of the loan when lenders see that you are no longer a credit risk.
Your Car is Worth More Than the Remaining Loan Balance
Time is of the essence when it comes to refinancing your car for an improved loan because most lenders will not work with you once your car reaches a certain maturity or has lost most of its value.
Therefore, if your car still has a fair amount of equity, then it may be a good time to refinance.
You’re Experiencing a Strain in Your Budget
If your budget has become strained since you first received your lending, then you may consider refinancing your car for lower monthly payments, provided your credit score has improved, which qualifies you for a lower interest rate.
You Now Qualify for an Auto Loan Without a Co-Signer
Depending on your financial situation when you first applied for your loan, your lender may have required you to have a co-signer to be approved.
However, if your credit history and credit score have improved since then, you can refinance your loan to remove your co-signer.
How Difficult is it to Refinance?
Though each lender has their own requirements for qualifying for their loans, many of them consider the mileage of your car when refinancing it to determine the rate.
The make and model of your car may also prevent you from qualifying for a loan with certain lenders, so be sure yours is not on their list of exclusions before you apply.
Some lenders also will not refinance your car if your original loan is with them, so be sure to check their guidelines.
To wrap up, there are various reasons to refinance a car loan; however, just be sure your qualifications have improved to truly benefit from it.
In the meantime, according to Lantern by SoFi, you should also “compare auto refinancing rates from top lenders…for great rates…and don’t let any lender run a hard credit check until you’ve determined that refinancing your car with the lender is right for you.” They also state that refinancing a loan with bad credit is also possible, provided you have a history of on-time payments with your current auto loan.