When is it best to refinance a car loan?
Since I first took out my car loan, I’ve been promoted twice at work and can now afford to pay off my loan earlier. Refinancing is probably the next step I’ll take to save interest. But when is it best to refinance a car loan?
Congratulations on the promotions! While no best time to refinance your car loan exists, some instances may provide a distinct advantage. This includes an improvement in credit, lower interest rates, or if you need to change your monthly payment amount.
Refinancing your car loan can be used to your advantage if:
- Your credit has improved since you first took out the loan. Having a better credit score can lower your interest rate and save you money.
- You need a new monthly payment amount. If your payments are too high, or you’d like to increase the size of your payments to repay the loan sooner, refinancing is smart.
- You disagree with your current lender and how they conduct business.
- You need a cash-out refinancing for other expenses.
In contrast, you should not refinance your car loan if:
- You have negative equity in your vehicle, meaning you owe more than the car is worth, also called an upside-down car loan.
- Your car is old. Finding a lender could be difficult if your vehicle is over ten years old or has more than 100,000 miles and your interest rate may be higher.
- You just bought the car. If you’ve had the car for less than a year, finding a better interest rate could be challenging and your credit score likely hasn’t recovered from the initial loan.
- Your current loan has a prepayment penalty that could offset any benefit of refinancing.
While reviewing your vehicle’s documents, you may also want to take the opportunity to ensure you aren’t overpaying for your car insurance by using Jerry. Jerry is an insurance comparison app that shops for low prices with over 50 different insurance companies for free and makes purchasing a new policy simple.
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