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| Why do people refinance car loans? |
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Last Updated
13th of April, 2010
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There are two main reasons why people refinance auto loans: 1) To lower the interest rate they are paying and 2) to reduce the monthly payment amount. You may be able to do both when you refinance.
Keep in mind that there are costs associated with refinancing car loans. Usually you need to owe at least $7,500 on the car to be eligible for a refinance. There may be a mileage limit on the car as well: for example, in some cases the car cannot have over 75,000 miles. Do your homework and research such refinancing requirements.
Refinancing to lower your interest rate
The new interest rate you’ll get is based on your credit score, so if this score hasn’t changed since you got the original loan, or if it has gone down, wait to apply for a refinance. You’ll need to improve your credit scores first. If you don’t know what your credit scores are, you can check them online.
Refinancing to reduce your payment
Aside from reducing your interest rate, an auto loan refinance can reduce your monthly payment. This requires extending your loan term, or the number of months you have to repay the loan.
Note: Extending a loan term is rarely a good idea because it significantly increases the amount of interest you’ll pay on the loan. Since car values depreciate so much, you'll be paying more loan costs on an older car. However, it can be a good option if the refinance can free up some cash and alleviate a financial burden. Just be sure to weigh the pros and cons, including the costs involved in refinancing.
Get more information about auto refinancing options or apply for an auto loan today!
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