5 Tips to Refinancing Your Car Loan
You have probably been enjoying the benefits of your car loan, from being able to drive a newer model than you could afford on cash alone to having access to better financing terms. But what should you do if interest rates drop and you would like to take advantage of that? You might be tempted to consolidate your current loan into a new one with a lower interest rate. Before you do, it is important to be aware of the consequences of refinancing your car loan, such as paying penalties and losing time towards certain benefits. Here are five tips to help you make an informed decision and understand your refinance car loan options:
Be Aware of Early Loan Termination Fees
Some lenders charge a penalty if you pay off your car loan before your contract ends. This can be up to several thousand dollars, so it is important to consider the risks carefully. If you are not confident that you can make all of your monthly payments for the duration of the loan, refinancing might not be a good idea until you have time to pay off your existing balance.
Cashing Out the Equity in Your Car
If you have equity in your car, meaning it is worth more than the loan on it, refinancing to consolidate debt might be another option. If you can do this without having to pay off your entire balance immediately, it could make sense. To find out exactly how much equity you have in your car, get two car values: one from Kelly Blue Book and another through Edmunds. Then, use the larger value to determine how much equity you have in your vehicle. Once you figure this out, speak to an expert about refinancing your car loan by visiting Lankford Ford .
Know Your Credit Score Before Refinancing
Your credit score is one of the factors lenders look at when determining what you are able to borrow. It is possible to have a low score due to not having used credit long enough or too much debt, but there are ways that you can improve your credit score before refinancing. Keep your spending low and pay off high-interest balances on cards as soon as possible. This will improve your credit score over time, allowing you to borrow more when you refinance.
Plan Ahead to Avoid Penalties
Another option is refinancing your car loan by consolidating multiple loans into one larger one. This can be beneficial if it saves money on interest, but there are certain steps you should take first in order to avoid penalties. Look into your loan contract and see if there is a prepayment penalty and whether any fees will be applied, such as for paying it off early. While some lenders do not charge these penalties, others do.
Consider Your Timing
It is also important to consider the timing of refinancing your car loan. If interest rates are high, putting extra money towards your existing balance might be a better option until interest rates drop. In some cases, as long as you don’t default on your loan, you might even be able to refinance again with a lower interest rate when rates drop.