Refinancing a car loan is when you take a new loan to pay off the balance of an existing car loan. In most cases, people opt for refinancing their car loans in order to save money due to the possibility of scoring a lower interest rate. Refinancing a car loan can decrease your monthly payments and result in more cash available for other financial obligations
So when is it a good idea to refinance a car loan?
Interest rates have lowered since you took out the original auto loan – Interest rates keep swinging up and down regularly. This results in a possibility of lower interest rates since you took out the original loan. A drop of a mere 2 or 3 percent can result in significant savings over the course of the loan.
Your financial situation has changed for the better – Lenders tend to plenty of factors to calculate individual auto loans. Some of these include your credit score as well as the debt-to-income (DTI) ratio. This is calculated by dividing your monthly income by your monthly debt payments. Therefore, it makes sense to decrease your DTI ratio by improving your credit health, which leads to much more favourable terms on a refinanced loan.
You were offered a less than ideal offer your first time around – If interest rates haven’t changed for the better or your financial situation hasn’t improved, it can still be worth sniffing around for better loan terms. This is because you might have missed lenders who were offering lower interest rates while your lender, in particular, provides higher rates.
You can’t keep up with bills every month – There are times when bills become overwhelming. In such instances, it might be wise to look for a loan with a longer repayment period so that you reduce your monthly payments. If you can’t find a loan that appeals to you, you might be able to renegotiate the repayment period of your current loan.
There are many situations where it becomes a good idea to refinance a car loan. Take a moment to assess your situation before making a decision.