Is car loan refinancing right for you?

October 22, 2019

Refinancing a car is taking out a new loan to pay off the loan you currently have. This could be very beneficial if you are tired of paying a large payment or need extra money to pay down existing debt. Typically, when people refinance its to get a better rate and lower their monthly payments to free up cash for other things.

Times that refinancing your loan could make sense

  1. If an interest rate has dropped since you last took out your loan. Interest rates change, so there could be a good possibility that the rates have fallen since you took out your original loan. 2 or 3 percentage points could be a significant savings over the life of your loan.
  2. Your financial situation has gotten better. Lenders can use a lot of different things to decide your loan rate. Your credit score is better. Your debt-to-income (DTI) ratio. All of these can determine a possible better rate and savings for you.
  3. You’re more versed in the car lending area. You’ve done your homework. Maybe the first time around you just went into a dealership and got the car with the pretty red bow and didn’t care about the cost upfront or hidden. You understand that shopping around is a good idea as well as going to your financial institution first to see if you can get a better rate rather than going to a dealership with, they want to give you the highest.
  4. You’re having trouble keeping up with your bills each month. If you can’t get a lower rate, you could always try to see if you could extend the life of the loan causing lower payments to at least help.

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