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When to Refinance a Car and When to Wait

Education | 02/07/2023 18:27

Refinancing a car is a bit of a game when it comes to timing. You get the most bang for your buck when the stars align, but if it’s not meant to be it can be a waste of time. So how do you know when the time is right to refinance, and when the time is not right?

Let’s talk about when you should refinance your car and when you should wait.

When should you refinance a car loan?

Why refinance? Car loan refinancing has a lot of benefits, but the biggest benefit is that it can save you money. But in order to save money, the timing must be right. Here are a few signs that you might benefit from car loan refinance.

Your credit score has improved.

Your credit score is the number one thing lenders look at when determining your eligibility for a car loan refinance. It will also help them to determine what interest rate you should be offered. Credit scores give lenders a good indication of how likely you are to repay a loan. A high credit score tells lenders that:

  • You make on time payments

  • You are not in too much debt 

  • You can manage making payments across multiple varying accounts

The better your score is, the better the interest rate you are offered will be. If your credit score was so-so when you initially financed, the interest rate that you were offered might not be ideal. But if you have worked to improve your credit there is a good chance you will qualify for a better interest rate. There are many reasons why your credit score may have improved in the past few years:

  • You made full and on time payments to your accounts

  • You paid off some debt

  • Your debt to income ratio improved (either due to decreased debt or increased income)

  • A negative event expired (such as a bankruptcy)

  • You have a better mix of credit

If you are considering car loan refinance, it’s a good idea to get a copy of your credit report and look for any errors. Correcting any errors can improve your score a good deal. Reviewing your report can also give you an idea of what areas you can improve on. But if your score is higher than it was when you initially financed, refinancing might be worth it.

The market rates have decreased.

Another way you can secure a lower interest rate on your car loan is if the market rates have decreased since you initially financed your car. The car market has been all over the place in the past several years, so this will very much depend on when you actually financed.

You want to pay off your loan early.

Sure, there are ways to pay off your loan early without refinancing. But if you do refinance your loan you can save money while doing so. When you shorten your repayment period lenders will often give you a lower interest rate which can save you a significant amount of money. If you couple this with a better credit score, it can mean a significantly lower interest rate. A shorter period also means you will be paying interest for less time, so you can save a lot of money in the long run.

You are having trouble making your monthly payments.

Even if you might not necessarily qualify for a lower interest rate, refinancing might still be a good idea for your finances. When you refinance your loan you can change your repayment period. If you are having trouble making monthly payments, lengthening your repayment period can spread out your repayment over more time and thus reduce your monthly payments a good deal (we are talking hundreds of dollars per month). While you will end up paying more over the life of the loan, this can still be a good move for you. Loosening up extra money every month can allow you to allocate that money to other payments, which may be important to you and help your overall financial health.

When should you not refinance a car loan?

Just as there are times when refinancing your car is a great idea, there are also times when refinancing does not make sense. If any of the following apply to you, it might not be a good time to refinance.

You have an older car.

If your car is older or has a lot of miles on it, chances are you will have a hard time refinancing your loan. Cars that are ten years old (or older) or have more than 100,000 miles on them are less likely to be approved for refinancing. 

Your loan is underwater.

If your car loan is underwater, you will have a very hard time refinancing it. This means that you owe more on your car than your car is worth. A car loan can become underwater if you do not put a large enough down payment on your car initially and/or make minimum payments on your account. Certain types of cars have a higher rate of depreciation, so simply having a car with a high depreciation rate can mean your loan can end up underwater.

Your loan is less than six months old.

If your loan is less than six months old it is a good idea to wait a little longer before you refinance. While there is no strict rule on how long you can wait to refinance your loan (you generally only need to wait as long as it takes for the paperwork to go through), experts recommend waiting at least six months to a year. This will give your credit score a chance to bounce back from the hard inquiry and give you a chance to establish that you are making consistent payments. This can lead to a better interest rate and better terms for your refinance. 

Your loan has less than two years left on it.

If your loan has less than two years left on it you may have trouble getting approved, or it may simply not be worth it to you. Car loan payments are designed so that you pay the bulk of the interest upfront. The nearer you are to the end of your loan period, the less you will actually save on interest as your payments will primarily be going towards the principal (this is called an amortized loan). The earlier you refinance the more you will be able to save on interest payments.

You have a lot of prepayment penalties.

Some car loans come with hefty prepayment penalties. These fees might outweigh any benefits of refining, so do the math before you commit to moving forward.

How can I refinance my car loan?

If it seems like now is a good time to refinance your car loan, contacting a company that specializes in refinancing is the best option for most people. Using a company that specializes in refinancing, like Auto Approve, makes the application process super fast and easy. They can also help you decide which loan is the best for you. 

Step One: Gather your information.

The first step to refinancing is gathering all of your information. You will need the following information to get the process started:

  • Current loan information. You will need the name of your current lender, your account number, and your payoff amount. It’s good to have the contract handy to compare specific terms as well. 

  • Personal information. You will need identification, proof of employment, proof of residence, and your contact information.

  • Vehicle information. You will need your car’s VIN, make, model, year, and mileage.

Step Two: Research and Apply

You should aim to apply with 3-5 different lenders for your refinance. Read online reviews, ask friends and family, and determine which lenders might be a good match for you. Consider a mix of traditional banks, credit unions, and online lenders. When you narrow your list down you can apply.

Step Three: Compare and Sign

When your offers come in, be sure to compare all of the terms. Look at the interest rates, the repayment period, the prepayment penalties, and all of the other terms. When you decide on a loan, you can simply sing and start saving. Your new lender will most likely handle paying off the old loan (but be sure to double check this). 

If you use Auto Approve for your refinance, they can help you with this entire process. From selecting which lenders to apply with to determining the best fit for you, our experts are your advocate for the refinancing process. 

That’s how you can determine if it’s a good time to refinance your car (and how to decide if you should wait).

Refinancing can help you to save a lot of money, but only if the time is right. Our experts at Auto Approve can help you determine if you qualify and can help guide you through the process. Get your free quote to find out if now is the right time for you!


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*APR and Fees Disclosure: Auto Approve works to find you the best Annual Percentage Rate (APR), which is based on factors like your credit history, vehicle and desired payment terms. Fees to complete your loan refinance vary by state and lender; they generally include admin fees, doc fees, DMV and title. Advertised 6.24% APR based on: 2019 model year or newer vehicle, 730 minimum FICO credit score, and loan term up to 72 months. All loans subject to credit and lender approval.
Auto Approve has an A+ rating with the BBB and is located at 2860 Vicksburg Lane North Plymouth, MN 55447. Auto Approve works to find its customers the best terms and APR, which are based on factors like credit history, vehicle, and desired payment terms. Loan amounts, costs, and fees vary by state and lender; they generally include admin fees, doc fees, DMV, and title fees, depending on the lender and period of repayment. There is no fee to obtain a quote and all refinancing-related costs are included in the amount financed so there are no out-of-pocket costs! For more information, please go to AutoApprove.com.