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5 Signs Its Time to Refinance Your Auto Loan

Auto recently refinanced drives into the sunset

Drivers stand to benefit from an auto loan re-finance as much as homeowners do from a home re-fi.

Refinancing isn’t a good idea for everyone- nor is it a given because of good credit history or months of on time payments. For example, if your car is worth less than the remaining loan balance (upside down), then the lender likely won’t approve your request to refinance. You can see how much your car is currently worth by looking it up on Kelley Blue Book or AutoTrader.Com. If your auto loan isn’t upside down, you may be in luck. Here are five scenarios which could qualify you for a refinanced auto loan.

Your Credit Score Has Improved

Perhaps when you signed the loan for the car originally, you had a bad credit score and the deal you got wasn’t great. Maybe it was your first car purchase, and as such you didn’t have much credit built up. Whatever the reason, if your score has improved, there is a good chance you can refinance at a lower rate. In this scenario, it is not uncommon for consumers to be facing an interest rate that is hovering around 18%. Several months of on time payments could be enough to convince the lender you deserve a lower rate.

Interest Rates Have Decreased

If interest rates have decreased since you signed the original car loan, now could be an excellent opportunity to refinance. Don’t think it needs to be a huge difference in percentage points for it to make a difference – even just one or two percent could save you a good amount of money over the course of the loan. However, be aware that under this scenario, the new car loan will be considered the same as a used car loan – which entails a higher rate. Still, you can likely still come out ahead, and with limited fees and a simple process, there is no reason not to explore this option.

Your Lease is Expiring and you Want to Buy the Car  

Many dealerships give you the option of purchasing a leased vehicle outright after you have fulfilled the terms of the lease. When it comes to finding a lender that can help you refinance, look to Credit Unions. Many have a history in helping consumers do exactly this. Be aware that you will have to open a checking or savings account at one if you wish to do this if you aren’t a member. 

Your Financial Situation Has Changed

 Has your financial situation changed for the worse recently? If this is the case, your loan provider may be willing to work with you. While it may be difficult to lower the interest rate directly in this situation, you could be able to stretch the payment out over more months, decreasing the amount owed every month.

Your Original Loan Wasn’t Great 

Even if you had a good credit score when you agreed to the loan, it doesn’t mean you necessarily got a great deal. Perhaps you didn’t know any better and looking back you believe the rate is too high. Often, this is the case when getting the loan through a dealership instead of an outside lending institution. The higher the interest rate the dealer charges the more money they can make, which is why if you’re getting a loan through the dealer, it always pays to negotiate. If you believe this to be the case and have been making the payments constantly, you very well could qualify for a reduced interest rate on the loan.

If any of the above situations applies to you, it would be wise to consider refinancing your vehicle. Even just a few percentage points between loans could mean hundreds if not thousands of dollars saved over the course of many months. Looking for a place to get started? Check out BankRate’s Auto Loan Calculator and see how much you could save by refinancing!

 

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