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Refinancing your car loan can help you lower your rate, your payment, or both. But when should you refinance your car to reap these benefits?
We’ll help you figure out how to know when the time is right for a refinance. Keep reading to learn which milestones to look for and how to decide when is right for your situation.
When you’re trying to decide when you should refinance your car, there are several considerations to keep in mind. But since there are so many variables involved, the best timing for you may be different than it is for someone else. The scenarios below can help you choose the best time to act.
Interest rates change frequently, rising and falling with economic conditions and market demand. One of the best times to refinance a car is when you can get a new interest rate that is significantly lower than your existing rate. For example, if you took out your loan when the average rate was 11%, but now the average rate is 8%, you may be able to save money by refinancing.
Your credit profile plays a big part in the loan terms you qualify for. When your personal financial picture is strong, lenders are more likely to extend credit to you at favorable rates. Improving your credit score could help you secure better terms or refinance without a cosigner. Check the auto refinancing requirements for several lenders to see which ones offer favorable rates to drivers with your credit profile.
If you’ve been paying your loan consistently, you’ve been building up equity in your vehicle and improving your loan-to-value (LTV) ratio. That means you owe less compared to what the car is worth, which lenders view favorably. You might even qualify for a cash-out refinance, where you refinance your loan for a slightly higher amount and take the difference in cash.
Sometimes circumstances change and you can no longer afford your monthly auto loan payment. Perhaps your income changed or you have new obligations you’re responsible for.
You might decide you should refinance your car for a lower monthly payment, even if it means paying a slightly higher rate or extending your loan term. The lower monthly payment could be the right move if you need short-term savings to be able to afford your loan and avoid default.
If you’re dissatisfied with your current lender, refinancing is a way to switch to a lender you prefer. You might want to switch lenders to find one that has better customer service, more convenient payment options, or fewer fees. By refinancing your auto loan, you can end your relationship with your current lender and begin one with a new lender.
While refinancing can often be helpful, there are some cases where it might not benefit you or save you money. Now may not be the best time to refinance a car if any of the following scenarios apply:
There’s no set time that’s best for a refinance. It could make sense to refinance your loan after one year if rates have gone down or your financial profile has improved. Twelve months can be enough time for you to improve your credit, or for economic changes to drive rates lower.
Rather than relying on a particular timeline to decide whether you should refinance your car, it’s better to look at other factors, like your credit score, market rates, and remaining loan balance.
The best time to refinance is when your personal financial situation has improved.
If your credit score has gone up or your income has increased, it could help you qualify for better terms. The same goes for paying your loan consistently and reducing the balance relative to the value of the car: lenders are likely to offer you better rates and terms.
Still, market conditions can play a role in timing your refinancing, especially if interest rates drop. Securing a lower interest rate through a refinance is one way to cut your total borrowing costs. You could even time your refinance to take advantage of seasonal loan offers or promotions to save more money.
Any time could be the right time to refinance as long as the math makes sense for your situation. Search for prequalified offers and use our auto loan refinancing calculator to get a better picture of whether refinancing now could benefit you.
Once you decide when you should refinance your car, RefiJet can help you find the right loan offer to suit your needs and save you money.
Below are some of the most frequently asked questions about when you should refinance your car.
If overall savings is your biggest priority, then refinancing earlier in your loan term to a new loan with a lower interest rate could save you more money than waiting.
Refinancing your loan after a year could be a good move if your financial situation has improved, because you may qualify for a lower rate and better terms.
You can refinance your car loan right away if you choose, as long as you meet the lender’s requirements. However, most lenders will want you to wait a bit before refinancing — 60 to 90 days is common, to allow enough time for the title to transfer.
Yes, it’s possible. Since auto loan rates are influenced by broader market conditions as well as your credit profile, you might still qualify for a lower rate if interest rates in general have dropped.
Generally speaking, you’ll get more favorable terms if you owe less on your auto loan than the car is worth. Owing more than the car is worth, or being “underwater” on your loan, can make it trickier to get a low interest rate.
Wondering when to refinance your car loan? Learn the best timing, the signs you will benefit, and what to check before applying.
