7 Questions to Ask Before Committing to Auto Refinancing
Looking for ways to reduce your monthly expenses? Feel like your car loan's interest rate is too high? Consider refinancing your car loan! When you refinance your vehicle loan, you take out a new loan to pay off your existing loan. Before you refinance your current loan, here are a few things to consider in order to determine whether or not an auto refinance is right for your financial needs.
Questions to Ask When Looking for Auto Refinancing
1. What Are Your Goals for Refinancing?
Decide what you want to accomplish by refinancing your car. What are your primary goals? Are you looking to lower your monthly payment, or are you most interested in reducing the amount of interest you pay over the life of the loan? This will help you decide which auto refinance products are best for you.
2. How Is Your Credit?
When you apply to refinance your car loan, your credit history is one of the factors your credit union will use when deciding whether to approve your auto refinance. It will also dictate the terms of your auto refinance. If your credit score is a little low due to maxed-out credit cards or missed loan payments, you may want to take a few months to pay down the balances and get all your loans up-to-date before applying for a new loan. This will help you improve your credit score. The better your credit, the more favorable the terms of your auto refinance.
3. What Loan Terms Are Available?
When you refinance your auto loan, you're starting the loan over with a new term. If your goal is to pay your debt off as quickly as you can, make sure to look for auto refinance loans with shorter terms. Should you value a lower payment, stick with loans that have longer terms.
4. Can Refinancing Lower Your Interest Rate?
No one likes having to pay loan interest, and it's a smart decision to minimize the amount of interest you pay for your auto loan. When you explore an auto refinance, search for loans that have a lower interest rate than your existing car loan. Even a loan with an interest rate that's only a few percentage points lower can save you thousands of dollars over the life of the loan.
5. Are There Any Costs Associated with Refinancing?
Each auto refinance program has its own terms and conditions regarding loan fees and prepayment penalties. Check to ensure you understand and compare any closing costs that are associated with the loan product so you know the true cost of the loan.
6. Are You Upside Down on Your Existing Loan?
Depending on the current value of your vehicle and your loan balance, it's possible you're upside down on your car loan. This means you owe more than the car is worth. When you're upside down, it's harder to find an auto refinance program that will approve your loan.
7. Is Your Car New Enough to Refinance?
Some lenders won't refinance vehicles that are over a certain age. This varies depending on the auto refinance program, but you may have trouble procuring a loan for vehicles that are 5 to 10 years old.