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Thinking about refinancing your car loan? A refinance can help you save money, but it has to make sense for your own financial picture. Here are some things you need to consider before applying.
Check with your current lender. You’ll need to find out if there are any prepayment or early payoff penalties on your current loan. If there are, crunch some numbers. Is the amount you’re going to save with a refinance still more than the fee you’ll end up paying? If so, refinancing may still be a good option.
One of the most common reasons people refinance is to secure a better rate. Find out what rate you’re paying on your current loan and compare it to the rate you may qualify for with a refinance. If it’s significantly less, then a refi can save you money. If the rates are about the same, or the refinanced rate is higher, this may not be the right time to refi.
How’s that number looking? If your credit has improved since you bought your car, you may qualify for a better rate. But if your score has taken a dive, you may want to work on bumping that number back up first.
When you’re looking for lenders to refinance your loan, ask what their requirements are. Some lenders won’t refinance cars that are older than a certain year or that have exceeded a defined mileage requirement.
It may be tempting to extend the term of your loan with a refinance because doing so lowers your monthly payment. But you’ll also end up paying more in interest. If your overall goal is to save money, you need to compare how much more you’ll be paying in interest with how much lower your payment will be. If cash flow is your issue and you just need to lower your payment, extending the term may be a realistic option.