When you buy a car, it's important to know that you're not locked into the loan agreement or interest rate that you get from the initial purchase. In fact, there comes a point when you may want to consider refinancing your auto loan. If you've been wondering whether or not it's worth refinancing your car loan, there are a few key considerations that may help you decide. Here's a look at a few of the common indications that it's beneficial for you to refinance your auto loan.
Has Your Credit Improved?
One of the most common reasons to consider refinancing your car loan is if your credit has improved since you got the loan initially. You may be eligible for better loan terms now than what you qualified for initially because you have improved your credit and added consistent payments on that existing loan. This could save you significantly over the remaining life of your loan with a lower interest rate or better payment terms.
Do You Have Pre-Payment Penalties?
You need to consider whether or not you have pre-payment penalties on your loan as well. Sometimes, those penalties don't apply if you're refinancing, so you can eliminate the potential cost of those fees if you want to pay your car loan early. Refinance with a lender that doesn't charge those penalties and you'll be in a better long-term financial position.
Are Interest Rates Lower?
You can often get a better deal on your car loan if you refinance when interest rates have dropped. If interest rates are lower, even by half of a percent, savings can add up significantly over the life of your car loan. This is especially true if you have several years left to pay.
Are You At Risk Of A Loan Default?
One of the times that people often don't think about refinancing their car loan is when they are at risk of default. If you're facing the potential of a default because the payment is higher than you can reasonably afford, consider refinancing before you actually reach that default. By refinancing before your loan goes into default, you can protect your credit from the damaging default effects and save yourself money.
Talk with a local auto loan lending service—such as Together Credit Union—today for more information about refinancing your loan. Your lender can evaluate your current loan terms to help you decide if refinancing can help you save money on your existing car loan.