Why And When To Refinance Your Car Loan
Refinancing loans is a great way to save some money. It can lower your monthly payment and/or shorten the term of your loan. There many reasons why people choose to refinance, but it is usually to save money on monthly payments. When it comes to refinancing, most people think of their home mortgage. And it’s true, refinancing a home loan can save a notable amount of money each month, bringing some relief to your monthly budget.
Few think of another loan type to refinance: your auto loan.
Refinance your Car Loan
Depending on a lot of factors, such as the interest rate and term, refinancing your auto loan can save you anywhere from $20 to $40 a month. While that may not seem like a lot in comparison to refinancing a home mortgage, it is money you get to keep. All the dollars and cents add up over time, and you could save $1,000 over the course of your remaining auto loan.
There are a few key times to refinance your car loan.
Drop in interest rates. A drop in the interest rates is the first sign that you could save money. Refinancing to a lower interest rate can reduce your monthly payment. There needs to be a drop of .5% before you would notice an appreciable change in your monthly payment. Check out our current auto loan rates.
A positive change to your credit score. Your credit score is one of the determining factors of your loan rate. If your credit score increases you may qualify for a lower loan rate, even if the overall interest rates have not dropped. Check your credit score a few times a year. If it’s getting better (the higher the number the better it is), then it’s a good time to look into refinancing your loans.
Financial troubles. There are many reasons to look into refinancing. One is finding yourself in a tight financial situation. This is a good time to look into refinancing your auto loans. There are many ways to configure a car loan to reduce the monthly payments and help you ease some financial pressures.
A change in personal status. Many people choose to refinance auto loans to save money. But another reason may be to remove a co-signer from the loan. The original loan could have been acquired along with someone else, as a co-signer, that should no longer be named on the loan. Refinancing would move you forward as the sole party on the note.
Is it ever a bad idea to refinance a car loan?
We mentioned many reasons when it is good to look into a car refi. But if your original loan contains a pre-payment penalty or an early termination fee, a refinance may not put you ahead. BMI FCU can work with you to figure out the scenario to make sure you any change you make is good for you. We will ensure that even if you have a pre-payment penalty or an early termination fee, that you will still end up saving money at the end of the day.