A car loan is often necessary to keep a job and manage life for your family. With the right vehicle and a suitable loan, you can enjoy affordable transportation and manageable payments. You may also be in a comfortable spot to refinance your car loan to even better effect.
Check Your Credit Score and Report First
Before refinancing your car loan, review your score and your credit report. A vehicle loan is a secured debt. If most of your current debt is unsecured, you may find that you can get a better interest rate with a secured loan. However, a secured loan is unsecured debt, so you could find yourself in the weird position of having a paid-for car and seeing your rating drop.
Extend the Terms to Lower the Payment
If you have more months than money, you’re not alone. If you have been steadily making car payments for a couple of years, you may be able to refinance the remaining balance for the original term. For example, if you had a 5-year loan and paid $15,000 for the car, you may have the remaining balance down to $11,000. Refinancing that $11,000 for another five years could lower your payments and help you build up some savings or pay down other debts.
If your interest rate is relatively high and you’ve been working to bring your score up, it can be beneficial to refinance to a lower rate, especially if you can keep making the same payment and pay off your car in a shorter amount of time. Do take the time to review the fees before you sign the documents. If the origination fee is high, it may make more sense to just up your payment and wipe the loan out quickly.
When Your Credit Score Has Gone Up
Too often you need a car to get a new job or make more money. If your credit has taken a hit due to underemployment or unemployment, you may end up getting a car loan with higher interest for a short time.
Used cars have a lower depreciation loss over time. This is whyit’s critical not to buy new when your credit score has taken a hit. Once your new car has made it possible to improve your finances, it’s time to refinance that loan.
Check your score to make sure you’ve moved up in the bracket ratings. Then check your car value on NADA or Blue Book. Talk to your current lender about getting a better rate, and be willing to move to another lender if you can’t get the information you need.
According to Lantern by SoFi, trying to refinance a car loan with bad credit can be hard on your credit rating. If you need to refinance to get rid of a cosigner or just lower your payment, get pre-approved via soft pulls to avoid further lowering your credit rating.
