Auto refinancing helps you acquire a more favorable payment plan for your vehicle. For some, this means stretching out the loan’s term over a longer period of time while decreasing the average monthly payment; for others, it means the opposite.
You may find the idea of refinancing your car enticing, but deciding whether it’s truly the right option for you may be challenging. Let’s look at why and when you might want to refinance your car.
Reasons to Refinance Your Car
Your Credit Score Has Increased
If your credit score has increased since the original financing of your vehicle, you could save on interest rates if you refinance. Interest rates are tied to your credit score, so a better score can often lead to smaller interest rates—and greater savings—on your auto loan.
However, keep in mind that a high credit score does not always mean lower interest rates. A “lower” interest rate in 2022 and 2023 may be higher than what a lower interest rate was in 2021, and 2021 was a record-breaking year for auto refinancing.
You Want to Lengthen or Shorten Your Lease and Alter Payments
Say, since the original financing of your vehicle, you’ve greatly improved your financial situation and are looking to reduce your debt as much as possible.
If your car loan is being paid out over a long period of time, shortening the loan term through refinancing could help you pay it off faster. This will obviously lead to larger monthly payments, but you’ll pay off the loan faster.
The same applies if your financial situation has deteriorated and you need more time to pay it off. You can lengthen the term of your loan and shrink your payments but stay liable for the loan for longer.
You Feel You Didn’t Get the Best Deal the First Time
It’s common for inexperienced, first-time car buyers to indulge in less-than-favorable financing. Perhaps you’ve grown your financial literacy over the years, or you heard about another lender offering more favorable rates and conditions for auto refinancing.
Shopping around and looking for better financing deals is a great way to save money on your car payments, especially if the state of the overall economy has improved and interest rates have dropped since you first took out your loan.
Reasons Not to Refinance Your Car
You’ve Paid Off Most of Your Loan
If you’ve already paid off most of your loan’s principal amount, you should hold off on refinancing, as it wouldn’t make much sense. You’ll likely get hit with an unsually high interest rate, even if your loan’s repayment term is shorter.
Your Car is Old
If your car is too old and has seen its fair share of driving, you’re better off withholding from refinancing. Some lenders won’t finance a car if it’s over a certain number of miles or if it’s been around for too long.
If You’re Considering Refinancing Something Else
Finally, if your car isn’t the only thing that you’re looking to refinance, you should hold off as well. Refinancing your auto loan has the potential to negatively affect your credit score and, therefore, negatively affect your future creditworthiness.
Examining Your Auto Refinance Options with Gravity Lending
There is no one-size-fits-all model for deciding whether to refinance your car, as everyone has different situations and needs. Unsure whether auto refinancing is right for you at the moment? Let Gravity Lending help you make the right decision.