If you are unhappy with your current auto loan, refinancing could help ease the monthly financial burden. Strong employment figures, long loan terms and low interest rates have contributed to robust auto sales in 2016 thus far. And a strong auto market usually leads to lenders feeling confident about extending credit to both new and refinanced loans. Under the right conditions, refinancing — which means replacing your existing loan with one from a different lender — may save you money.
Numerous factors determine the rise and fall of interest rates, including economic climate, banking industry competition and regulatory considerations. It is possible that interest rates will fall during the course of your car loan. If this is the case, refinancing may save you money. Though your car is considered used at this point, the interest rate on a refinanced used car loan may still be lower than what you are currently paying. Even a slight fall in interest rates can put money in your pocket every month. Shop around and inquire with various lenders in order to find the best refinance deal.
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According to our 2016 Auto Loan Forecast, auto loan delinquency rates have declined 28 percent since 2009 and are expected to remain low. Therefore, it can be economically beneficial to refinance your auto loan if your credit has improved since purchasing your car — the healthier your credit, the better loan rate you will be offered. The most influential factor on a VantageScore credit score is your payment history. If you’ve paid your bills, rent or mortgage, and current auto loan payments on time, your improved credit score may get you better loan terms. This is especially true if you are able to raise your credit score to 760 or above, which tends to be considered “very good” among auto lenders.
Escaping a Bad Deal
Those who aren’t familiar with their credit score or history can be taken advantage of by an auto lender and end up paying too much for their car. Even customers with favorable credit can fall prey to dealer-sourced auto loans, which tend to be higher than other lending institutions. If you are in this category, the damage can likely be undone by refinancing your loan.
Stay the Course
Refinancing isn’t for everyone, and there are times when keeping your original loan makes sense. For example, if your vehicle is worth less than the balance on your current loan, a lender will probably not want to take the risk of refinancing. The age of your car matters as well — some lending institutions will not refinance a motor vehicle that is over a certain age, such as seven years old. Also, your current loan may carry a penalty for paying the loan off early, which will reduce the money you make back on interest. Carefully read the terms and conditions of your current loan before determining if refinancing is right for you.