When to Refinance Your Vehicle

If you have a high interest rate on the loan for your car, you have probably entertained the idea of refinancing to get a better interest rate and get out of paying some of this debt. It is not uncommon for banks to offer consolidation or refinancing on your loans with very low fees, making the offer seem even more appealing. There are certain situations where it makes more sense to refinance than to stick with the plan you have, but you will need to evaluate your personal finances in order to make sure these opportunities are available to you.

Opportunities for Smart Refinancing

If you have leased a vehicle and the lease is coming to an end you may have decided that you want to purchase the car rather than giving it back to the lender. Renegotiating your contract and getting this kind of financing in place before your contract expires will make it much easier to get competitive rates on your new contract which can save you a great deal in interest. Taking out these loans while the vehicle is still in your name will also prevent you losing some of the value of your vehicle throughout the refinancing process.

If you have been working on improving your credit score you can use this hard work to your advantage when you are refinancing. Those with a solid credit score are eligible for much better interest rates than those with an unstable financial history because lenders do not need to worry as much about getting their money back. If your credit score has raised significantly, refinance your vehicle to take advantage of potential savings.

On the other end of the scale, if you have recently undergone several financial setbacks you might not be able to make the payments you once did to maintain your auto loan. You will need to refinance your vehicle before you are unable to make payments to avoid hefty fees or having to return your car to the dealer. You can decrease your monthly payments by increasing the length of your contract so you do not have to worry about paying as much at once when you have less in your pocket each month to spend. If you plan on owning the car outright then you do not have to worry about increasing your payment schedule because you will not have to return the car to the dealer at any given time in your contract like a leaser would.

If you settled your financing for your new car through the dealer when you made your purchase you probably were given a rate based on convenience rather than an affordable rate. If your contract allows negotiation of your price you can go back to the dealer and secure a lower interest rate. If this option is not available to you, you can secure a loan from your bank, use the proceeds to pay off the first loan and then make individual payments on the new loan with the lower interest costs.

Any time interest rates drop across the market you stand to save money by refinancing. Since used car loans usually have higher interest rates than new car loans you will need to evaluate whether or not you will save by making the switch. Even if your new loan is one percent lower than your original loan you can stand to save hundreds throughout the life of your contract. You will know when to refinance your vehicle when you take the time to sort out the math and compare the final price you will be paying with and without changing your rates.

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