The growing financial strain due to the pandemic has left many people in a pickle about auto refinancing. Is it a good time to refinance a car? Well, here’s the deal. If you’re financially stable and have a decent credit score, now may be a good time to refinance an existing auto loan and secure a new one with a better interest rate.
On the other hand, if your income has recently declined or if you’ve been unemployed for a while, car refinancing may not be a good idea. Therefore, the only good time to consider an auto refinance is if you’re financially stable.
Factors to Consider Before Proceeding With an Auto Refinance
If the interest rate on your existing loan is higher than what you can afford, it may be time to look around and see what other lenders are charging. Interest rate is one of the biggest reasons people choose to refinance their loans since it allows them to have more manageable monthly payments.
Has your credit score improved recently? Your credit history plays a crucial role in determining your new loan terms. Hence, you should only proceed with a car refinance if your report shows consistent on-time payments and a high score for, at least, the last six months.
Existing Loan Terms
Generally, the rule is, the longer the loan term, the more you’ll end up paying interest on it. Hence, if your goal is to land a shorter-term, make sure you’re prepared to deal with the additional expense that comes with paying higher amounts each month.
More than figuring out whether the time is right to refinance, evaluate whether your car is worth it. For instance, if you’re upside down on your current loan, then refinancing may not be a suitable option at the moment. This is because the refinancing agent or the lender won’t have much of an incentive to work with you since they’ll be stuck with a vehicle that’s worth less than the money they lend.
Duration of Your Current Loan
Refinancing is only worthwhile once you’ve had enough time with your existing loan to be able to build a stable credit history. However, taking too much time with your current loan can also be detrimental. Hence, if you think it’s too early or too late to consider a refinance, you may want to hold back and focus on the existing loan.
In the end, there’s never a determined time period when you should or shouldn’t refinance. It’s absolutely important to consider your personal as well as financial circumstances before considering an auto refinance.