Are you contemplating refinancing your auto loan? It’s a major decision, but can often lead to substantial savings, especially if you navigate the process strategically. There isn’t a minimum waiting period to refinance after purchasing a vehicle, but the sooner you do, the more you could save. However, there are several factors to consider when you decide to refinance your loan.
Understanding the Motives for Refinancing
Before reaching out to lenders, it’s crucial to understand your motivations for refinancing your auto loan. If you can manage your current monthly payments, consider refinancing to a lower rate but maintain the same payment. This way, you can pay off your loan quicker and with less interest, freeing up finances for other areas.
Alternatively, if your budget is stretched thin, you may want to extend the term of your auto loan to decrease your monthly payments. Bear in mind that while this may provide temporary relief, you’ll end up paying more interest over time.
Considerations of Your Borrower Profile
When applying for an auto loan, your credit score is a pivotal factor. If your credit score has improved since you took out the auto loan, or if general interest rates have dropped, you could qualify for a better rate when refinancing.
However, remember that higher overall market interest rates can impact refinancing. If, for instance, the Federal Reserve decides to increase average interest rates across the board, you could face a higher rate when you refinance, regardless of your borrower profile.
The Worth of Your Vehicle
If your vehicle’s outstanding balance is more than its current value (known as being “underwater”), it could be challenging to find a lender willing to refinance your loan at a lower rate. Vehicles underwater pose a higher risk for lenders, as they won’t recover the full loan balance if they need to seize and sell your vehicle.
Making additional payments on your existing loan to prevent it from going underwater could help you secure a lower interest rate when refinancing.
*Toronto Car Loans is not responsible for the accuracy of this information, and this information is for educational purposes only*