The best time to refinance a car varies by person and individual circumstance. Refinancing can offer a borrower an opportunity to lower her car payment, reduce loan payback amount or shorten a current loan term. Determine the ideal times to refinance and if the option can benefit you financially.
When You Have a Down Payment
You can lower your current car payment and shorten your loan term if you have a down payment to offer toward your refinancing. Even if you don't obtain a lower interest rate, you'll save money over the term of your loan when providing a down payment. Providing several thousand dollars toward your current car loan will not lower your payment, although you'll decrease your loan payback term. Refinance if you have several thousand dollars to put toward your loan; every $1,000 you use for a down payment should reduce your monthly payment amount by about $20 per month. If you also obtain a lower rate, you'll save even more money.
When You Qualify for a Better Rate
If interest rates have dropped since you initiated your loan or your credit has improved, obtaining a lower rate is advantageous. You can save thousands of dollars over your loan term or up to $100 per month if you can obtain approval with a competitive interest rate. If you originally financed through a dealership to take advantage of manufacturer discounts, you likely obtained a rate that was higher than average. Check the rates of auto loan providers in your area or online to determine if your current rate is higher than average.
When You Have a Co-signer
If your current rate is high but your credit history is less than excellent, a co-signer can help to refinance your loan. You can change your term or obtain a lower rate. Because a co-signer secures your loan with his credit and income, you'll qualify for the same rates as the person who co-signs for you. Your co-signer should have good to excellent credit. If you have experienced financial hardship and your credit has suffered, using a co-signer can help you to achieve a lower monthly payment without having to abide by various loan restrictions.
When You Want to Change Your Term
Extending your loan term might also offer some benefit. If your financial needs have changed, you've changed jobs or lost income, you can lengthen your loan term to take advantage of a lower monthly payment. If you need to increase your loan term because of your financial circumstances, you may want to check with your current lender first. Some lenders offer loan modification programs to help during financial hardship, such as unemployment or disability.
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