Auto refinancing can be one of the best ways to keep more money in your bank account. Lower monthly payments and reduced interest charges are both possible when refinancing an auto loan. But, refinancing also has the potential to extend the time you must make payments on your vehicle. To help determine whether auto refinancing is a good option for your current financial situation, review these four instances, and learn when a refinance should be approached with caution.
A common reason for refinancing a loan is to pay less interest, which reduces the overall cost of the vehicle. Another reason for refinancing is to lower monthly car payments, which can help create space in your budget to meet other financial obligations. What’s your reason for refinancing? Determine how your finances benefit from refinancing an auto loan. If you’re unable to see the benefit of refinancing, then reconsider pursuing this option for now.
Changes to the Fed Rate influence the cost of borrowing, i.e., the interest rate of your auto loan. The Fed Rate increased four times in 2018 and only recently lowered its rate in July 2019. Borrowers must pay attention to these fluctuations to determine how it might affect their decision to apply for new loans. Lower interest rates can mean huge savings. Compare current auto loan rates to your loan’s interest rate. Have interest rates fallen since you first signed for your loan?
Some financial institutions offer a different set of loan rates depending on whether the loan is for the purchase of a vehicle or if it’s for an auto loan refinance. At Prince George’s Community Federal Credit Union, borrowers can be confident that rates are the same regardless of the type of auto loan needed.
If available rates are higher than your current rate, this might not be the best time to pursue an auto loan refinance.
Credit scores are a significant factor in lending decisions. While you still might be able to refinance your vehicle with imperfect credit, expect to pay higher interest rates. A better option would be to work on raising your credit score by making on-time payments to your creditors and decreasing your outstanding debt balances. If your credit score has improved, you may be eligible for a lower interest rate loan, even when there has been no change to household income.
Compare rates at different financial institutions before you decide on a refinance loan. There’s no need to stay with your current lender, even if they offer attractive refinancing terms. A better deal might be just around the corner. If your credit has improved since your initial loan, it’s time to shop. Don’t forget to look beyond low advertised rates. Here’s why.
If you rush to refinance your auto loan, you might ignore the other costs associated with taking out a new loan. Even if you find a loan at a lower interest rate, you’ll want to factor in any other applicable loan costs. Add the potential costs of early termination fees, administrative processing fees, and state registration fees (applicable in some states when you refinance an auto loan) to ensure these fees don’t eat at your savings. Fees and longer loan terms may negate the benefits of refinancing and might mean a refinance should be delayed until another time.
Assess your current financial situation and review your financial goals. Unless you know why you want to refinance, it is difficult to determine the best time to do so. We would love to help you determine if now is the right to refinance. Please contact us to speak with a Member Service Representative concerning your situation.
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