Most of us feel that a car payment is a permanent fixture in our lives, but your auto loan doesn’t have to be a life sentence. In fact, at some point, you may save money by refinancing into a better loan.
When You Can Refinance Your Auto Loan
There is no set time determining when an auto loan can be refinanced. You don’t even have to wait a minimum number of days, months, or years before you can refinance your vehicle. You simply have to meet all the requirements of a new loan to refinance.
Auto refinancing is possible immediately after purchasing your vehicle and even before making your first monthly payment. The most critical aspect of refinancing your auto loan is to ensure that the new loan is better for you than your current loan and that you won’t end up paying more by refinancing.
Pay Less Interest By Refinancing Your Auto Loan
The best reason for refinancing your current auto loan is to borrow at a lower interest rate. Assuming all other factors are equal, a lower rate affords you the ability to pay less for your car once you’ve deducted any borrowing costs. Interest rates are:
- Part of your monthly car payments.
- So lowering the interest rate means your monthly payments will be less than currently.
- Keeping more money in your pocket.
Tip: Most auto loans are amortizing, meaning you pay a fixed monthly payment with built-in interest costs. Refinancing your existing loan as early as possible will save you the most money.
Refinancing Your Vehicle Once Your Credit Score Improves
We need cars and trucks to conduct our daily lives, and quite often, vehicle purchases must be made even when personal credit scores are not in the best shape. Your credit score directly affects your auto loan’s interest rate, and thus, if your credit score improves throughout you own your vehicle, you may be able to refinance the auto loan at a lower rate.
Your credit improves by making monthly payments on time and when negative items fall off credit reports after some time. Sometimes, even a year of making regular payments can bring your credit score up enough to secure refinancing at a lower fixed rate.
Tip: If your current auto loan has a co-signer, your improved credit score may allow you to refinance and remove the co-signer altogether.
Auto loans can be refinanced at any time, giving you a loan with a lower interest rate which saves you money both monthly and over time. If you