It’s likely that if you’re considering auto refinancing your auto loan, you want to see a reduction in the amount that you have to pay each month. On the other hand, a smaller payment each month can end up costing you more money overall over the course of the loan’s duration. When determining whether or not to refinance your auto loan, the following are six considerations you should make.
1. Refinancing requirements
You should make it a point to inquire about the specifics of the refinancing requirements, as each financial institution and lender has its own needs. You can determine whether or not to refinance your auto loan with the help of our refinance auto loan calculator.
2. Prepayment penalties
Is your present lender going to charge you a prepayment penalty if you pay off your loan sooner than expected? Although Bank auto loans do not have such penalties, you should conduct the following calculation if you are subject to one: If the amount you save through refinancing is a considerable amount more than the penalty, then it is possible that refinancing is still a beneficial decision for you.
3. The rates of interest
It may be a good time to refinance a car loan if the interest rate you qualify for today is a substantial amount lower than the rate you are currently paying on your loan. If it has remained the same or increased, refinancing is generally not the best decision at this time.
4. Your overall credit rating
Have you been able to improve your credit score when you first got that vehicle loan? If it is improved, your better score may help you qualify for a reduced interest rate. If it is not improved, it will not help you qualify. Figure out how to get your credit score up where it needs to be.
5. Your source of income
If you’ve noticed a decline in your income, it may be in your best interest to consider refinancing your car loan in order to bring down your monthly payment. The smaller payment may help to relieve some of the burdens that your monthly budget is under. If you don’t already have a budget, you should seriously consider making one so that you have a better handle on all of your expenditures.
6. The amount of time that is still left on your loan
You might be able to lower your monthly payments and retain more money in your pocket if you refinance your loan and lengthen the length of time it will take to pay it off; but, you might end up spending more money overall on interest over the course of the loan’s duration. On the other hand, if you refinance your mortgage to a lower interest rate with the same or a shorter term than you already have, your overall payments will be decreased. This can be accomplished by either keeping the same term as you currently have or shortening it.