Have you recently taken a loan out to purchase your dream car? If so, by now, you may have discovered how you’re paying an interest rate much higher than what you would like it to be. On the other hand, it may also be possible that you can no longer afford your monthly payments. So what do you do now?
While car refinancing is definitely an option you can explore, there are also several other intricacies involved. Read more to learn when it’s the right time to refinance your car after purchasing it.
When Does Refinancing Early Make Sense?
If You’ve Landed a Bad Deal
Financing through a dealership does have a few downsides, and one of them is not being quoted the best rates. For the most part, some dealerships don’t provide the best quote to ensure maximum profits for the lender. This could mean that you may be in hot waters financially.
If Your Credit Score Has Significantly Improved
Perhaps it was a corrected mistake on your credit report or the fact that you paid off most of the outstanding debt. You may have significantly improved your score over time, and this means that you should now be eligible for a lower rate.
If Your Relationship With the Lender Has Improved
Since most institutions always have special deals in place to attract new borrowers, the chances are that your lender will hopefully refinance your loan at an attractive new rate, especially if your vehicle is new. This could mean a better rate than what you may have taken on initially.
If You’re Unable to Afford the Loan Payments
The earlier you figure out the problem of affordability, the better. At the same time, do not commit the mistake of getting your loan duration extended, as the reduction in monthly payments may not be worth the amount you end up paying over the life of the loan.
When Is the Right Time to Refinance?
Believe it or not, it’s possible to refinance a car even right after you have purchased it. However, the decision solely relies on whether the move is in your best interests or not.
Opting for it too late during the course of your existing loan could mean that it ends up costing you more money or taking a significant toll on your long-term plans. This is because you will be paying the maximum amount of interest on your current loan during the early phases of the loan terms.
The Bottom Line
Whether you choose to refinance your vehicle right after purchasing it or wait it out for a few months, remember, the goal of car refinancing is to get a lower rate and also a lower monthly payment.
If you’re not able to achieve that, it’s better to wait it out and improve your credit score before looking for the next potential lender. However, make sure not to wait for too long as by then, you may already have paid the most amount of interest on the loan.