Refinancing a car needs as much thought as buying one in the first place. No matter the reason you’re considering auto refinancing, some situations are not worth it. Here are some instances when you should avoid going ahead.
You’re Upside Down on Your Loan
Lenders are hard to find, especially when you’re not doing so well on your current loan. Even if you manage to get one, it will not be a good move since it’s a huge risk to the lender in case your loan is above the collateral. This means that the interest rate you get after auto refinancing will be higher than the average. After all, a higher interest rate is not why we consider going for a car refinance anyway.
The Car Is Quite Old
Finding a lender for a car older than ten years is very difficult. This is because most lenders have a limit set on how old a vehicle should be to qualify for a deal. Even though it’s generally discouraged to go for a car refinance in this situation, you can look for alternative options such as taking out a personal loan.
There Are Prepayment Penalties on Your Loan
Early loan payment is sometimes as big a problem as of late payments. Some lenders can charge you penalties for doing so. Therefore, it’s important to re-think your decision if the loan accompanies pre-payment penalties.
You Bought the Car Quite Recently
When you take out your first car loan, your credit score needs some time to recover. Therefore, you should wait at least five to six months for it to get back on track. It’s also important to note that even if you bought your car just a month ago, it’s still used. Hence, a new lender may set a higher interest rate on it. With the passage of time, you have a better chance of getting a deal you like as your credit score improves.
In the end, the best time to refinance your car is when you know the following:
- You will get a lower interest rate
- You can save money
It’s a no-brainer to know at this point that the worst time to consider it is when none of the above is present.