When Should I Refinance My SUV?

When Should I Refinance My SUV?
When Should I Refinance My SUV?
Finance
| Nov 05 2021
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Here’s the best time to refinance your SUV

Refinancing your SUV is the process of taking out a new loan to pay off the balance of your existing loan. There are a number of reasons you might want to refinance a vehicle


Perhaps your financial situation has changed and you need a little more money every month, a little more breathing room in your wallet. Vehicle refinancing can help lower your monthly payments, either by lowering your interest rate, extending your payment timeline, or both. 


Maybe you have a bit of extra money and you want to pay off your SUV at a faster rate and be done with the loan entirely. Refinancing can lower your interest rate and decrease your payment timeline, allowing you to pay off your loan faster and ultimately save you money.


Here are some factors to consider when deciding if now is the best time to refinance a car or SUV.


How you know the time is right

There are many things to consider when it comes to refinancing a car. If any of the following apply to you, it might be a good time to refinance your vehicle.



You didn’t get the best deal on your SUV in the first place due to your credit or income

You originally bought your SUV when times were a bit tougher. Maybe your credit score had just taken a hit from some inquiries or some missed payments. Maybe you had a tough couple months at work and your income wasn’t as high as the bank would have liked. Regardless, the bank didn’t view you as a very desirable candidate, and you were stuck with a rather high interest rate.


Since then, your credit has improved. You have checked your credit reports on the three credit bureaus (which you can do for free once a year), and everything looks better. Your job is steadier, and your paychecks are a bit bigger. You know that if you went for that loan now, you would get a much better rate. While there is no magic credit score to refinance, you know that you are a much more desirable candidate this time around.


You didn’t get the best deal in the first place due to a smooth talking salesman

You went in to browse and get an idea of what kind of SUV you might be interested in, and before you knew it you were signing on the dotted line. Somehow you agreed to a 7% interest rate when other lenders were offering 5%, and you didn’t even see it coming. Car dealerships notoriously offer higher rates to make more money, and it is common to get caught up in the excitement and agree on the spot.


Simply refinancing to an accredited lender may reduce your interest rate, even if your credit score and income have remained the same.


Interest rates in general have dropped since you first took out the loan on your vehicle

Did you take out your loan years ago when interest rates were high? Big banks tend to adjust interest rates based on how the economy is performing. If the economy is dragging, as we are seeing now, banks will often lower interest rates to encourage more spending. It is important to take advantage of these rates before the economy speeds up, and the banks increase rates again. Timing is key when it comes to interest rates and refinancing your vehicle.



You want to add or remove a borrower to your policy

Adding or removing a co-borrower to your loan is a very common reason to refinance, whether the reason is personal or financial.


Adding a Borrower

Maybe times are tough right now. Your hours at work got cut and you are struggling to make ends meet. The monthly payments are simply too much to keep up on. Your friend or partner however could use a set of wheels, and they have some extra money to help bridge the gap in your payments. Best of all? They have fantastic credit.


Adding your friend or partner to the loan can secure you a better interest rate and reduce your overall payments, since you will be splitting the monthly cost. The lender will consider your joint income and both of your credit scores when determining an interest rate.


Removing a Borrower

What about removing a co-borrower? Maybe you had a co-borrower on the original loan because your credit wasn’t the best, but you don't really need the help anymore. Or maybe you were in a relationship that has now gone south and you need to separate from that person financially. Either way, refinancing your vehicle is a great way to sever that financial tie.


You need the extra breathing room each month

Your finances have changed a bit for whatever reason, and you are having trouble making your monthly payments on everything. Refinancing can allow you to lengthen your repayment period, which will lower your car loan payments every month. Keep in mind that this often means you will be paying back more money overall for the duration of the loan, unless you are able to drastically reduce your interest rate as well.



It’s been at least six months since you originally took out your SUV loan

You need to wait at least 60 to 90 days to be able to apply for refinancing, as it typically takes this long for the title transfer to complete. But waiting six months will allow your credit score to bounce back from any dips that your credit score may have taken when initially securing your loan. First time borrower? Experts suggest waiting a year to refinance to optimize your refinancing options.


You have at least two years remaining on your current SUV loan

Since most of the interest for a loan is paid in the beginning, the more that is paid off on the loan, the less beneficial refinancing can be. Having at least two years remaining on your loan will help ensure that you will benefit from refinancing your vehicle.


How you know the time is not right

While it might sound tempting to refinance with the current low interest rates, there are several reasons that it might not be the best time to refinance your SUV. If any of the following apply to you, consider waiting on refinancing your vehicle.


Your credit score has decreased

Your credit score is the single most important factor in determining your interest rate. If your score has not increased since your original loan, you will likely not qualify for refinancing. Credit scores can decrease for a number of reasons, such as:

  • Late or missed payments.
  • High credit balances.
  • One of your credit limits decreased.
  • A lot of new credit inquiries.
  • Your credit utilization score has dropped. This ratio is determined by adding up all of your credit card balances and dividing it by your available credit. This number should ideally be 30%


Any of these factors can cause your credit score to drop. Request a copy of your credit report and if you see any inconsistencies, you can report it to the credit bureau. 


You need a high credit score for another reason

When you apply for refinancing, your credit score will take a hit. There is a fourteen day window allowed by the big three credit bureaus that allows for all credit inquiries in that span to count as one credit hit. But if you need your credit to be in good standing for another reason, say a mortgage application, it is best to hold off. These credit inquiries will affect your credit score for a year, so plan accordingly.



The fees outweigh the savings

Some lenders build in prepayment penalties to their contracts. To offset the cost of losing your remaining interest, they build in penalty payments. Read your contract closely to see if you will incur any penalties, and call your lender directly if you are still unsure. Sit down and do the math to determine how much you will save by refinancing a vehicle, and see if that outweighs any penalty fees you might incur.


You have an old vehicle or a vehicle with high mileage

If your SUV has very high mileage or is an older model, it will be difficult to refinance. It might make more sense to consider trading in or buying a new SUV if this is the case. 


You owe more on your SUV than it is worth

When you owe more on your SUV than it is worth, it is referred to as being “upside down” or “underwater”. If this is the case, lenders will not see the value in refinancing your SUV loan.


Hopefully this has helped you determine the best time to refinance a car or SUV.


If the time seems right, Auto Approve is standing by to help you apply, compare offers, and determine the best refinancing option for you. Auto Approve never marks up the rate you pay, so you know you are getting the best rate available. With an A+ rating from the Better Business Bureau and a 96% would-recommend rating from Lending Tree, you can be confident that we will work hard to save you money.


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