Refinancing your vehicle can be life changing. Yet, even with all the benefits that come with refinancing, it can be difficult to know if this process is right for you. For that reason, drivers need an all-inclusive auto refinancing guide. A car refinancing guide should not only tell you how to refinance your vehicle, but also when to do it. Follow along to find out the benefits, if this process is right for you, and how to get started with refinancing your auto loan.
Why You Need an Auto Refinancing Guide
Auto refinancing can be tricky, but a guide can help you navigate the process. With a simpler process, more people can benefit from refinancing and the perks that come along with it. Some of these perks include:
- Pay Less Interest on a Car Loan – For those who financed their loan at the dealership or those that had a lower credit score when they originally purchased their vehicle, refinancing can help you pay less interest.
- If your credit score has recently improved, you should always inquire about getting a new lower rate and save money over the life of your loan.
- It is also common knowledge that dealerships mark-up interest rates and keep the additional interest income – this practice is surprisingly the standard at most U.S. based dealerships.
- If your credit improved AND you secured your loan at a dealership, you should not wait to inquire about a refinance since you stand to benefit more than average.
- Secure a Lower Monthly Payment – Is your car payment a little too high?
- Car payments are responsible for a large chunk of monthly bills for individuals and families. Refinancing may lower your monthly car payment, and free up your budget for other bills and purchases.
- Pay Off the Loan Sooner – Refinancing can also help you pay off the loan earlier.
- This situation occurs most for people who have had a recent increase in their income. Adjusting your auto loan after a salary increase can provide a lower interest rate and shorter term.
Is Now the Time for You?
Now that you know the many benefits of refinancing, this auto loan refinancing guide will cover the conditions in which you should reevaluate your loan.
First you might consider refinancing if you’re concerned about interest. You might move forward with refinancing if interest rates have dropped since you acquired your loan. Additionally, if your credit health has increased, you can secure a lower interest rate as well.
Second, an auto loan may be perfect for you if monthly payments are a concern. Everyone experiences financial difficulties, especially in times of high inflation and/or a recessionary environment. When you need to lower your monthly payment, refinancing may be the right choice; however, keep in mind that this may lengthen the lifespan of your loan. The good news is, most auto loans do not have early payback penalties, meaning you can refi for the lowest payment you can get now, and once you no longer need the additional cash-flow, you can overpay your loan and get back on track, or even pay it off earlier than expected.
To piggyback on that last point, auto loans are simple interest fixed rate loans. Compared to a credit card, which is a compounding variable rate line of credit, where most people pay 5-10x higher interest rates than the average auto loans.
If you had a $10,000 loan and $10,000 in credit card debt, you always want to pay off the higher interest rate obligations first.
By refinancing your auto loan to a longer term, you are likely able to free up enough cash to pay off your credit cards faster, then use those minimum payments to overpay the auto loan pay it off earlier than intended. While this will give you an opportunity to save even more interest overall, you will need to have a disciplined approach to keep on your debt payoff schedule.
How to Refinance a Car
When you refinance with Gravity Lending, you can secure the best auto loan for your needs. Our team of experts has over a century of combined experience in the industry, with nationwide connections that offer you the greatest rates possible. When your situation changes, and you need refinancing to match it, start the process by applying with Gravity Lending.