Car Refinancing, Does It Pay Off?

There are times when you might find it to your benefit to refinance your car.

If you are paying a high rate of interest you may be able to get a lower interest rate if you take the time and make the effort to research available lower car loan rates.

Perhaps you purchased your car and simply agreed to whatever loan the dealer suggested.  Often you will find a lower rate elsewhere.

It is best to refinance your car loan during the first year or two of the loan.  The refinance amount allowed will be based on the current value of the car. A car older than about two years may be worth less then what your still owe on the loan.  You are “upside down” on your loan.  You may still be able to get a refinance, but you will need to pay upfront the money needed to cover the difference between the current value of your car and the finance balance due.

Car loans are usually front loaded so  you are paying the most interest at the beginning of the loan period.

Before you refinance your car loan be sure your current loan does not contain a clause stating you need to pay not only the principal amount still due, but also the total interest amount even though you are paying early.

When you refinance a car you probably will not have to have an appraisal.  Unlike refinancing a house, refinancing a car is fairly simple.  You need to find a lender to refinance the car.  You may have to pay the lender a fee, but it will be minimal.  Often the lender fee is $10 or less.  You will also have to pay a fee for a change of title.  This charge varies by state, but it will be less than $100.  When you purchased the car the title was issued in your name and the name of the lender.  When you change lenders you need to change the title.

If you want to refinance your car to save money then you want to have a lower interest rate loan with approximately the same time to pay off the loan.  You will not be saving money overall if you pay a lower interest rate for a much longer time period.

If you are having trouble making your car payment each month  you might want to refinance your loan for a longer period of time.  You will not save money this way, but you will be able to keep your car.

If your credit score has improved by 50 points or more you should be able to get a better interest rate.  It’s wise to check your credit score at least once per year

If your own credit score is not great, but you have found someone with good credit willing to co-sign a loan with you, then you can probably obtain a lower interest rate.

Whether or not to refinance your car loan depends on  your personal financial situation.  It is not expensive or difficult to refinance a car.  You will need to determine if this option is right for you.  Car refinancing may save you some money. Or refinancing for a lower car payment you can afford can allow you to keep your car even though you are paying for a longer time period.