Car purchases are typically facilitated by means of a car loan (also known as an auto loan). These loans, designed particularly for buying a vehicle, come with specifically crafted terms keeping in mind the borrower’s plight as well as lenders’ interests. Depending upon various factors, car loans are provided with varied terms to different borrowers, who can also choose to refinance it. This can help significantly for getting more advantageous terms, when availed at the right time. So what is the best time to refinance a car loan? Let’s find out.
When To Refinance A Car Loan Usually, the best time to refinance a car loan can vary a little depending upon each borrower’s individual circumstances. However, some lenders prescribe that the best time to do so is after at least six months of having the car loan issued. Some others suggest that the best time to refinance the car loan is after one year of acquiring the loan. The common thing that all lenders agree with is that the loan should not be refinanced too close towards the end of the loan term/ or when you are about to finish paying it off. This is because you may not get a lot of advantage, and the endeavor might be much more effort than worth.
Factors To Consider For Refinancing Before you go ahead with refinancing your car loan, there are a number of factors which you must consider a range of factors that can impact this decision. Consider the following. Interest Rates The objective of refinancing a car loan is usually to get better rates of interest which can help in lowering the overall amount of money you spend. So, the first factor to consider is the rate of interest that you are getting. As per this principle, the best time to refinance your auto loan is when you are getting a suitable rate of interest which is lower than your original loan rate. This will allow you to pay off the original loan with the new one, while being liable to only pay for the new one which carries lower interest rates. By getting lowered interest rates, you end up paying less interest amount which is the only benefit area where you can strive to save money. If you wait till the very end of your loan term to refinance, this difference may be very low. So, it is vital to keep monitoring interest rates on car loans.
Improved Credit Score As you pay off your debts through regular payments, your credit score improves considerably. With every timely payment, your score will improve which will ultimately improve your creditworthiness. This change can benefit by improving what rate of interest you are provided by new lenders. When you want to refinance your car loan, you can approach the lenders with your improved credit scores, and get the best terms suggested for the loan. As such, it is essential to keep monitoring your credit score every now and then to get an idea of what might be the best time for you to get the loan refinanced.
Change Of Lender Another significant reason why a borrower might want to refinance their car loan is because they are having a tough time with their existing lender and wish to find a new, more bearable one. This can happen to anyone because some lenders can be very problematic to deal with, coming up with ways to make the loan term more tough. If this is the case with you, you might want to refinance. However, in such a case, you must be more vigilant about selecting the right lender to avoid the same problem in the future. In this case as well you may want to wait a few months before going to change the lender.
New Terms Another factor to consider is the overall terms of the loan which you are getting. If you are able to find a lender who is providing you with better overall loan terms such as better rate of interest, reduced monthly or bimonthly payments, longer term of the loan, better terms in case of penalties, more favorable prepayment terms, etc. If you are unsatisfied with the existing terms of the loan you can find lenders who are offering you improved terms which can encourage you to refinance the loan.
Change From Dealership Loans A lot of people opt for loans or finance options that are provided by the car dealerships where the vehicle is being purchased from. This is a very convenient option when finding a finance option for the car. However, it may not be the best. Dealerships can offer loans at higher rates of interest than the prevailing market price to make profits. If you have taken your loan from the dealership, you might want to refinance the loan as soon as possible. By simply opting for a more traditional place for getting your loan, you may get better terms instantly, like lower rates of interest. This allows you to benefit from the refinancing even if you have opted for it very early on in the loan term.
Positive Equity It may so happen during the term of your loan that you achieve a positive equity on your vehicle. This typically happens when you have paid enough of your loan that the prevailing market price of the vehicle is higher than the amount of the pending loan. When this happens, you can easily opt to refinance your vehicle for better rates of interest or better overall loan terms. For this path, however, you must be aware of the prevailing market price of your vehicle and take quick action as the vehicle’s value keeps depreciating as it gets older.
Conclusion Refinancing a car loan is an important yet tough decision which needs to be perfectly timed to gain maximum benefits. Borrowers who are seeking to refinance their car for any reason should have updated knowledge of their vehicle’s value, their creditworthiness, as well as prevailing market conditions with respect to car loan policies in order to make informed decisions.