Fall is finally here and we are all ready to settle down after the fun of summer and get ready for the rest of the year (and the impending holiday season!) So now is a great time to get your finances in order and try to save as much money as possible before the holiday season comes raging in.
One of the fastest and easiest ways you can save money is by refinancing your car loan. But how do you know if the time is right?
Let’s talk about why now is a great time to refinance your car loan.
When should you refinance a car loan?
Refinancing a car loan is when you pay off your existing loan with a new loan. The new loan you get should have better terms, such as a lower car loan APR, a better repayment schedule, and/or different prepayment penalties.
The best time to refinance your car loan will depend on your circumstances, but if any of the following apply to you, it might be time to refinance.
Your credit score has increased.
The main reason to refinance your car loan is to reduce the car loan APR you are paying and ultimately save money. The car loan APR you will be offered will be based on:
- Your credit history
- The amount you are financing
- The length of the term
- The age of your vehicle
Your credit history is ultimately the most important factor in the car loan APR you will be offered. Lenders look at your debt to income ratio as well as your credit score to determine how dependable you are to pay back the car loan. Credit scores are based on five different categories:
- Payment History (35%)
- Accounts Owed (30%)
- Length of Credit History (15%)
- Credit Mix (10%)
- New Credit (10%)
A change to any of these categories can cause a significant swing in your credit score. There are a few reasons your score may have changed, even if you haven’t been actively trying to increase it. Here are the top reasons your credit score may have increased.
- You reduced your overall debt. By paying down some of your accounts you may have reduced your overall debt, even if you were just making your minimum payments every month.
- You got a higher credit limit. If you requested a higher credit limit, or had your limit raised automatically, it can give your credit score a boost. Your score is dependent in part on your credit utilization ratio (how much debt you are in vs how much credit you have available to you). The more credit you have available to you (and the less debt you are in) will result in a higher credit score.
- A negative event expired. Negative events, such as foreclosures and bankruptcies, can cause your credit score to take a huge hit. But these negative events have expiration dates, usually between 7 and 10 years. When these events expire, your score will get a boost.
- You fixed an error on your credit report. You should request a copy of your credit report a few times per year to ensure that it is accurate and up to date. It is not uncommon for there to be major errors such as missed payments that will cause your score to dip. Reporting any errors and having them removed may help your score a lot.
If your score has increased for any reason, you should consider refinancing your car loan.
The market rates have decreased.
While your credit score and finances are firmly within your control, the market rates are not. If you originally financed your car when the market rates were higher than they are now, it’s probably a good time to consider refinancing.
You need to adjust your repayment period.
Your repayment period affects not only how much you will pay in total for your car loan, but also how much money you will pay every month. If your repayment period is on the shorter end of the spectrum, let’s say 24 months, there’s a good chance that your monthly payments are very high. If you need some more breathing room every month, refinancing your car loan and lengthening your repayment period can reduce your payments significantly. But it is important to note that when you lengthen your repayment period you will end up spending more money over the course of your loan. After all, you will be paying interest over a longer period of time.
You need to add or remove a cosigner.
Financing a car with a cosigner is not uncommon. If your credit score isn’t in top shape, getting a loved one to cosign may help secure you better terms and a better car loan APR. But if you no longer need that financial help and would like to free your friend or family member from the loan agreement, you will need to refinance your car loan.
On the other hand, if your credit score has taken a dip but you still want to refinance, you can add a cosigner on when you refinance to try to secure the best rates possible.
Is it easy to refinance an auto loan?
With all of the benefits of car loan refinancing, the best news is that it’s actually super easy. There is an application process that is similar to when you originally financed your car, but once you are approved you can start saving money instantly. Here’s how to get started:
Prepare yourself as much as possible for your refinance. Make sure your credit is in good shape, collect all of the paperwork you may need, and review your current loan agreement so that you know what you are looking for with your refinance.
Do Your Research
There are a lot of lenders that will refinance your car loan. From traditional banks to online lenders to credit unions, there are seemingly endless places to apply. This is why it’s so important to do your research and be prepared. You will not have actual rates or terms to compare, but you can check out customer reviews to see how they are ranked. Are customers happy with their loans? Do their rates seem competitive? When customers have problems, does their customer service resolve their issues? All of these aspects you can research ahead of time.
Apply and Compare
You ultimately want to pick 3-5 lenders to apply with. Be sure to apply in a fourteen day period so that all applications will count as one hard inquiry on your credit report. Once you get your offers, be sure to compare not only the car loan APR but the repayment period, the customer reviews, the fees and the prepayment penalties. Compare them not only to each other, but to your existing car loan.
This process is super easy if you use a company that specializes in car loan refinance, like Auto Approve. We have relationships with lenders across the country, which means we can easily find you the best rates nationwide. On top of that, we can help you fill out all of the applications (which can be very time consuming!) and help you compare and decide which car loan is the best choice for you.
Sign and Save
Once you decide on a car loan, all you have to do is sign and start saving money. The new lender will contact your existing lender to pay off your loan. You will need to update your information with the DMV (but if you refinance with Auto Approve, we will take care of this for you!)
Is now a good time to refinance a car?
So, is now a good time to refinance a car? The answer is, it depends (but probably!) We are just getting out of an unprecedented economic time, and it is unclear what will happen with market rates in the future. It does seem pretty clear however that market rates are only going to increase from here on out. That means that now is the best time to refinance if you are considering vehicle refinance.
If your credit score has increased since financing or you just need a little extra breathing room every month, refinancing your car loan can help you save money every month.
Fall 2022 is a great time to refinance your car loan.
Fall is a great time to get realigned with your finances, and refinancing your car loan is a great first step. It’s quick, it’s easy, and it can help you prepare for the holiday spending that looms on the horizon.
Refinancing your car loan is incredibly easy when you use Auto Approve. Our experts can guide you through the application process and help you compare which offers are the best. So don’t wait any longer to start saving money–there’s no telling what might happen to interest rates in the coming months. Refinancing today can help you lock down today’s low rates. Get your free quote today!