Is it a Good Idea to Refinance Your Auto Loan?

key in car ignition

When you’re buying a new car, you typically shop around for the best deal. You take the time to research which car best suits your needs. You test drive different vehicles to make sure you end up with the best one. But when you’re buying a new car, do you also take the time to research your best auto loan options? Unfortunately, not everyone puts as much time into researching the best auto loan options when it comes to buying a new vehicle.

Choosing the wrong financing option could end up costing you hundreds or even thousands of dollars in interest over the life of the loan. Picking the best auto loan is just as important as picking the best vehicle.

If you didn’t put much thought into your auto loan when you originally bought your car, take the time now to see if refinancing would end up saving you money. When considering an auto loan refinance there are two main things to consider—is it beneficial to you, and if it is, how does the process work? Here’s what you need to know about refinancing your auto loan.

Does refinancing your auto loan benefit you?

The main reason most people refinance an auto loan is to get a lower interest rate. The lower your interest rate, the less you’ll pay on each month and over the life of the loan. To find out if refinancing would benefit you, ask yourself these questions.

Has your credit improved?

If your credit has improved since you originally bought your car, you may be eligible for a lower interest rate. One of the biggest factors in determining your interest rate is your credit score. The better your credit score is, the lower your interest rate will be.

There are three major credit bureaus—Experian, TransUnion and Equifax. Normally, your credit report is available every 12 months from all three credit bureaus. However, due to the current economic conditions caused by COVID-19, online access to your report is now available on a weekly basis. Visit AnnualCreditReport.com and follow the prompts to view your credit score.

Most lenders use this information along with the FICO scoring model to calculate your credit worthiness. As a Partner Colorado member, you can view your FICO Score through our Mobile Banking App. This is a great way to understand your credit and avoid surprises that may show up.

Are interest rates better now?

Research current interest rates and see how they compare to the rate you originally got with your auto loan. If interest rates are currently lower than when you were shopping for your vehicle, chances are you might be able to lower your monthly payment. Use our online auto calculators to determine how much you could potentially save with a lower interest rate.

Can you afford to increase your monthly auto loan payment?

If you’re currently in a better financial position, this may give you more freedom on what you’re able to pay each month. Maybe you have a better paying job or maybe you’ve been able to pay off some credit card debt.

Most people don’t refinance an auto loan to increase their monthly payment, but it can actually end up saving you money in the long run. By refinancing to a shorter term, you’ll pay more money each month, but you’ll also pay off the loan faster and pay less in interest over the life of the loan. Shorter terms also usually come with lower interest rates. The sooner you pay off your auto loan, the sooner you can save or spend that money elsewhere.

How to refinance your auto loan?

If you determine an auto loan refinance is right for you, your next question is—how does the process work? When you refinance, you are simply replacing your existing auto loan with a new auto loan. Be sure to research other loan factors too, like prepayment penalties and loan terms. Use our online auto loan calculator to determine which loan term will give you the monthly payment that best fits your budget.

Once you’ve found the right auto loan refinance option, you can begin the application process. You can apply for an auto loan refinance with us online or via our Mobile Banking App.  

Your new lender will pay off your original loan. Then, typically you’ll start making a payment on your new loan within 30 to 45 days. Right now, when you refinance your auto loan from another lender with Partner Colorado, you won’t have to make a payment on your new auto loan with us for 90 days!

Taking the time to research your auto loan refinancing options is an important step in getting the best possible deal. If you have any questions about refinancing, we’re here to help. Chat with us online, text us at (303) 900-1104 or call us at (303) 422-6221.