When Should You Refinance Your Car Loan?
December 28, 2018 | By Daniel Dewitt
Though it isn’t common knowledge, a car loan can be refinanced over its lifetime just like a mortgage. And just like refinancing a mortgage, refinancing a car loan can shave off vital percentage points from the interest rate that over time can save you hundreds if not thousands. Taking out a title loan could help you out in a financial emergency, but how do you know when it’s the right time to refinance?
Timing Is Everything
Most refinancing opportunities will lower your interest rate by between 5% and 10%: this means you’ll pay less each month, and less as a whole over the life of the loan. If timed correctly, refinancing can substantially improve your financial situation. But how do you know when the right time is to refinance? It can be trickier than it seems. Here’s our guide to walk you through the subject with these 3 simple questions:
Where’s Your Credit Score?
Your credit score is the number from which all other credit-related numbers in your life will spring from. If your credit score has changed (for the better) since you entered into the car loan then you can most likely refinance in a way that will decrease how you much you’re paying each month to the bank.
How do you know what your credit score is, though? Luckily, you’re entitled to one free credit check a year from any of the three big credit companies, and the process is both quick and painless and can be completed online.
What’s the Length of Your Loan?
The length of your original loan is often a good indicator of whether you should refinance or not. Generally, if the loan is in the 5 to 8-year range, then you’ll be able to get a good rate when you refinance. Besides just decreasing the interest rate, another upside of refinancing a long term loan is that you often have the option to speed up how fast you pay the loan, meaning that you’ll pay less interest in total since there will be fewer payments.
What’s the Average Current Interest Rate?
Of course, the best way to know if you can get a better interest rate from refinancing is to research what the average interest rate is for your situation. Monitor Bank Rates is a great online tool for doing what its name suggests, and can help keep you abreast of what the current interest rate for car loans is and what you might be able to get if you refinanced.
How a Title Loan Could Help
A title loan can help you in the event of a financial setback, but refinancing can put the fear of not making your payments to rest for good. Do your homework, compare rates, and make an informed decision – you’ll be glad you did!
Refinance for What’s Right
Refinancing your car loan is an underrated but powerful financial tool that more people should be aware of. To know if it’s the right time for you to refinance, just ask yourself: has your credit score improved, did you have a lengthy loan to begin with, and what’s the current average interest rate for car loans? Answering those three questions will let you know if now is when you should refinance your car loan.