Looking to save money? Auto loan refinancing might be an option by allowing you to replace your existing loan with a new one – ideally at a better rate, with different terms, or both.

But before you jump in, you should understand how the process works, how it could benefit you, and what to consider before accepting a refinancing offer.

Auto refinancing in a nutshell

Refinancing an auto loan involves taking out a new loan to pay off the balance of your current auto loan. The new loan will typically have different terms, such as a lower rate or a longer (or shorter) repayment period. This process is designed to help borrowers reduce their monthly payments or pay off their loans faster.

The benefits

Refinancing, if done at the right time, can have a host of financial benefits, like:

• Lower monthly payments: Refinancing to a longer loan term or a lower interest rate can reduce your monthly payments.
• Lower interest rate: If your credit score has improved since you first got your loan, or if market interest rates have dropped, you could qualify for a lower rate.
• Shorter loan term: You might opt for a shorter loan term, allowing you to pay off your car sooner. While your monthly payments may increase, you could reduce the overall interest paid over the life of the loan.
• Change in loan terms: Refinancing can allow you to adjust your loan terms to better suit your financial situation, such as switching from a variable to a fixed rate for more payment stability.

How it works

Refinancing your auto loan isn’t hard, but you’ll want to take a few steps to make sure you get the best deal.

1. Evaluate your current loan: Before refinancing, you should review your current loan’s rate, remaining balance, and repayment schedule.
2. Shop for a new loan: Look for refinancing options from lenders that offer better terms than your existing loan. Lenders will evaluate your credit score, vehicle age, and outstanding balance.
3. Apply for refinancing: Once you’ve found a reasonable offer, be prepared to provide information about your vehicle, employment, income, and current loan details.
4. Approval and payoff: Upon approval, the new lender will pay off your existing loan, and you’ll start making payments to them instead.
5. Begin new loan repayments: Your new loan will either have a lower interest rate or a different term length, allowing you to benefit in the way you’ve chosen (lower payments or quicker payoff).

When does refinancing make sense?

Refinancing your auto loan may make sense – if you time it right. For example, if your credit score has improved or interest rates have dropped, you might be able to secure a loan for less interest overall. It may also be a good time to consider refinancing if you need a lower monthly rate to free up some budgeting room or if you can afford to pay off your loan faster and want to save some on interest.

What to consider before refinancing

Once you’ve applied for refinancing, ensure you’re getting the best deal possible. Consider:

• Rate: Know your rates. Even a slight reduction can lead to substantial savings, but it should be enough to justify the effort of refinancing.
• Loan term length: While a longer loan term can lower your monthly payments, it may result in more interest paid over the life of the loan.
• Fees and costs: Some lenders may charge fees for processing, application, or prepayment penalties on your current loan. Be sure to account for these additional costs when evaluating the savings from refinancing.
• Total loan cost: Calculate the total cost of the new loan, including interest and fees, over the entire term. Make sure that the new loan will actually save you money in the long run.

Auto loan refinancing can be a great way to save money, lower your monthly payments, or pay off your loan faster – if done at the right time and with careful consideration. You can make an informed decision by understanding the process, evaluating the potential benefits, and weighing important factors like rates and fees.

Ready to explore your refinancing options? Contact us today, and we’ll help you create a plan that fits your financial goals.