Some bills can’t be changed. For other bills, though, a little legwork can make a big difference in your monthly payment. Your car loan payment is a great example. Refinancing your auto loan can lead to a lower monthly payment, a shorter payment term or both. It depends on various factors, including the value of your vehicle, how much you owe and your credit standing. Here are three common life changes that might mean it’s a good time to refinance your auto loan.
Your credit improves
One of the biggest factors in determining your auto loan status is your credit score. When your lender is building a loan package, a credit report is pulled as a central part of that process. Your credit score number helps determine your interest rate, how much you’ll have to pay for insurance and what other fees your lender might charge.
If you didn’t have much experience with credit when you purchased your vehicle, refinancing can do you a world of good. Interest rates as high as 18% are common for borrowers who have little to no credit history. Having even a few months of solid payments on your side can sometimes cut that rate in half or more.
You didn’t shop around before you borrowed
Many people feel railroaded throughout the car-buying process. They pick a car they like, then they are told what the price is, what the monthly payment is and everything else. It may seem like the choice of lenders for your car loan is predetermined.
Dealers tend to have a smaller range of lenders with whom they work exclusively. Those lenders know they have limited exposure to competition, so they can charge slightly higher fees and interest rates. By doing your own comparison shopping, you can save quite a bit on both the loan and any insurances or warranties you may have purchased. Dealer rates tend to be 1 to 1.5% higher than those offered at smaller lenders, like credit unions. Plus, when you refinance your auto loan with us, you’ll make no payments for 90 days!*
If you’ve never shopped around for a car loan, it’s definitely worth doing. By getting multiple offers, you can ensure you’re getting the best price available for your loan. Try to do your shopping inside a 15-day period. Otherwise, the multiple checks on your credit could negatively impact your credit score.
You need to change your monthly payment
You may be in a much better financial situation now than when you bought your car. You may have a better job or more security. You may have paid off credit card or other debt. All of these things free up how much you can pay per month.
Most people don’t go into the auto loan refinancing process looking to increase their monthly payment, but you can save yourself money in the long term by committing to a faster repayment plan. If you can afford to pay more per month now, you can pay off the balance on your car faster. Shorter term loans usually also have lower interest rates, since the lender assumes less risk in making the loan. Once the car is paid off, you’ll have all that money to devote to other saving or spending priorities.
On the other hand, if money is tight, it might be a good idea to refinance into a longer term. While you might end up paying more in interest, you can reduce your monthly payment and save the money you need right now.
*Offer and rates subject to change without notice. All applicants subject to credit and income verification. Ninety-day payment deferral is available to qualified borrowers for auto loans approved through standard lending guidelines (without exceptions). Regular finance charges continue to accrue during the deferred payment period. Offer valid on auto loans funded between 07/01/20-09/30/20. Not applicable on motorcycle, RV, boat loans or current Partner Colorado auto loans.