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Home » Should You Refinance Your Car Loan? 8 Questions to Ask Yourself

Should You Refinance Your Car Loan? 8 Questions to Ask Yourself

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  • 4 min read
Is it time to refinance your car loan?

In a healthy economy, refinancing an auto loan can be a strategic move. But, with interest rates on the rise, is it still a smart choice? The short answer is maybe. If you owe more than your car is worth, you may not be eligible to refinance. However, if you initially opted for a high-interest or long-term loan through a dealership, online lender, or bank, you could save a lot just by moving your loan to a credit union. That’s because (as not-for-profit organizations) we are often able to offer more competitive interest rates and more flexible terms.  

As you determine whether now is the right time to refinance, consider these questions.

1. Are current interest rates lower?

Interest rates are constantly on the move. When they drop, it may be wise to explore your refinancing options—especially if you purchased your car when rates were high.

2. Am I eligible for lower interest rates?

If your credit score has improved since you initially obtained the loan, you might be eligible for a better rate—even if interest rates are high. A lower interest rate could lead to significant long-term savings and reduce your monthly payments, freeing up funds for other expenses.

3. Has my financial situation improved?

If you were initially approved for your auto loan during a period of financial instability (or with a lower income), you may have gotten less than favorable loan terms. If your financial situation has since improved, you may qualify for better loan options.

4. Could I negotiate a shorter loan term?

If you were initially tied to a long-term loan (72 months or more) and are now in a better financial position, consider refinancing for a shorter term. Of course, shorter loan terms will likely come with slightly higher monthly payments, but in the long run, you’ll save a lot on interest payments.

5. Do I need to improve my cash flow management?

Life’s circumstances can change. Chances are, there will be times when you need to improve your cash flow. Refinancing your auto loan to extend the term could lower your monthly payments temporarily and provide you with more financial flexibility during challenging times.

6. Can I benefit from consolidating my debts?

Refinancing can also be a great way to consolidate multiple debts. If you have multiple high-interest debts, it may be wise to refinance your auto loan or roll it into a personal loan for a higher amount to pay off all your debts. This way, you’ll have only one loan to manage—potentially at a lower overall interest rate.

7. Did my initial loan require a co-signer?

If your original auto loan required a co-signer due to limited credit history or poor credit, and you’ve since built a stronger credit profile, you might want to refinance to remove the co-signer. This will release the co-signer from any financial obligations associated with the loan, giving you full ownership of the loan.

8. Would I benefit from switching loan types?

If you initially opted for a variable-interest-rate auto loan and are concerned about potential interest rate fluctuations, refinancing can enable you to switch to a fixed-rate loan. Fixed-rate loans offer stability and protect you from sudden rate increases, providing peace of mind throughout the loan term.

To Refinance or to Not Refinance

So, should you refinance your auto loan? The answer depends on your circumstances. If you can secure a lower interest rate, improve your loan terms, or adapt the loan to your current financial situation it could make a huge difference.

Before you proceed, talk with an expert, review the terms, and take note of the obstacles you may encounter. For example, it’s important to note whether your original lender will charge a penalty for paying off your original loan early.

 If you believe that refinancing will offer tangible benefits, give our lending team a call. We can help you explore your options and help you make an informed decision.

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