Scenarios When You Should Refinance an Auto Loan
October 4, 2021
If you find yourself asking, “Should I refinance my auto loan?” it probably means you’re unhappy with your current monthly payment. If you’re ready for a change, now is a good time to look into auto loan refinancing.
Refinancing an auto loan is often a great way to save money on your monthly payments, but it’s not the best option for everyone. Doing your due diligence is important to make the best decision for your unique financial situation.
Top 5 Reasons to Refinance an Auto Loan
The idea behind refinancing is simple. You take on a new loan to pay off the balance of your existing loan at a lower interest rate or better terms. Is auto refinancing right for everyone? No. Refinancing your auto loan at the wrong time could mean you’ll end up paying more money over the loan’s lifetime. It’s essential to do your homework and learn about the scenarios that make sense for you. Below are just a few situations where it might make sense to refinance.
1. Market Interest Rates Decline
Interest rates can fluctuate greatly over time. Interest rates a year ago could be completely different than interest rates today. Changing economic climates, increased banking competition, and even regulatory changes can all impact interest rates. What does that mean for you in terms of refinancing your auto loan? If interest rates are lower now than they were when you originally applied for your loan, refinancing to the lower rate could save you money and help you pay off your loan sooner.
By talking with a local bank or credit union, you can determine whether refinancing to a lower interest rate is an option.
2. Your Credit Score Improved
If your credit score has improved since your original car loan, it could be a good time to refinance. Your credit score directly impacts the interest rate you qualify for, so improving your score can help you qualify for a better interest rate. A lower interest rate will help you pay off your loan sooner and lower your monthly payments.
3. Your Ability to Make Monthly Payments Has Changed
If your income has dipped or changed since getting your original loan, refinancing might help you lower your monthly payment in a way that makes more financial sense. The lower payment can help spread your budget further and allow you to get back on your feet.
4. You Want to Consolidate Your Loans
If you have a home loan and a car loan, there may be benefits to having them both under one bank. Each bank or lender has specific refinancing agreements, so do your homework before making the switch. It has to make financial sense for you to consolidate your loans.
5. Avoiding Prepayment Penalties
Since all lenders have different terms with their loans, it’s possible your current loan could restrict your ability to make prepayments or pay off your loan early. If you’re subject to a prepayment penalty, do the math. If the amount you’ll save by refinancing is better than the penalty you’ll face for transferring your loan, refinancing might be a good idea.
The best thing you can do when exploring a new loan rate is learn more about what each bank and lender have to offer. Always ask for details. Check the interest rate, find out the monthly payment, and pay attention to any special terms that might cost you additional money. The goal is to save yourself money by refinancing an auto loan, so always do your research and ask questions.
Ready to explore the possibility of refinancing your auto loan? First National Bank and Trust Company
is happy to walk you through the process and ensure you have all the information you need to make an informed decision. We offer low rates and flexible terms on new and used vehicles. Use our easy auto loan calculator
to estimate a monthly payment. Learn more about auto loans
from First National Bank and Trust Company.