Although a car loan is the most common way to finance a vehicle, it can be confusing. Here are a few steps that you can take to determine if a loan is right for you.
According to Lantern by SoFi, “Refinancing your auto loan can be a useful tool in achieving several financial goals.” You might want to refinance a car loan with the same lender if you had a positive experience the first time.
If the market has changed or your financial situation has become more challenging, it’s possible to refinance your car loan. Below are some signs that it may be a good time for you to look into it.
1. Market Interest Rates Have Dropped
The interest rates on your car loan can change throughout the year due to the market’s movement. If you took out a loan a couple of years ago, the current rate might be lower than the one you’re paying now. If you are approved for a lower interest rate, your monthly payments will often be less. You will pay slightly less interest over the life of your auto loan.
2. You Have Improved Your Credit Rating
Your credit score can affect the interest rates that you pay on a car loan. Having a good credit score can help lower your monthly payments and keep you from paying higher interest rates. Suppose your financial situation has improved since you took out a loan; it might be possible to refinance and lower your rate.
3. You Want to Change Your Monthly Payment Amount
If you’re struggling with your financial situation, a longer loan term may be suitable. It can help lower your monthly payments and allow you some extra funds for other debts. If your finances have improved, then it’s possible to lower the length of your loan term and increase the monthly payment. This new lower rate will allow you to pay off the loan faster.
4. You Want a New Loan Without a Cosigner
Some people with bad credit or no credit history get car loans with a cosigner to improve their approval odds. However, if your financial situation has improved since getting your initial loan, you may only want to refinance and have a loan in your name.
5. You Want a Better Deal
It may have seemed like a good idea to get a car loan through a dealer at the time, but now you may notice it wasn’t the best deal available. If this is the case, you can find a lender to refinance your car loan with better terms and a lower interest rate.
6. You Want to Cash Out Your Equity
The difference between the value of your car and the amount of money you owe on it is called equity. If you have a car worth $8,000 and a loan balance of $5,000, your equity is $3,000. Refinancing for a lower amount could allow you to get extra money in your pocket.
If you cannot afford to pay the higher interest rate than you’re currently paying, then it’s time to consider refinancing. Using a loan refinance calculator, you can see how much you can save by taking out a new loan.