As a result, when considering whether or not to refinance your auto loan, it’s important to weigh the benefits and drawbacks of doing so. Refinancing is not always a money-saving option, so it’s important to weigh the pros and cons before making the decision.
If you’re wondering, “Should I refinance my car loan?” consider the following considerations to help you decide if refinancing is the best option for you.
Those considering refinancing their auto loans are most likely hoping to lower their monthly payments in the process. However, a lower monthly payment may result in you having to pay more money out of pocket throughout your loan’s life cycle. When deciding whether or not to refinance your auto loan, consider the following six considerations.
The necessity of refinancing
It is important to note that each bank or lender has its own set of requirements for refinancing, so be sure to inquire about them. Consider the following scenario: If you have $7,500 or more in principal and interest remaining on your car loan ($8,000 if made in Minnesota), and the car is less than 10 years old with less than 125,000 miles on it, you may be eligible to refinance with Bank of America. We can show you whether refinancing your auto loan can save you money using our auto loan refinance calculator.
- Penalties for early repayment.
What if you pay off your loan early and your current lender assesses you a prepayment penalty? However, if you have a Bank car loan and are subject to one of these penalties, think about the numbers. It is still possible to save money on your mortgage by refinancing if the amount you save outweighs the amount you pay in interest.
Interest rates are the third factor to consider.
The time may be right to refinance a car if the interest rate you qualify for is significantly lower than the rate you are currently paying. Unless it has remained the same or increased, refinancing is most likely not the best time.
- The status of your credit rating
What changes have you noticed in your credit score since you took out your first auto loan? You may be able to qualify for a lower interest rate if your credit score has been improved. Improve your credit score by following these steps:
The amount of money you earn
If your income has decreased, it may make sense to refinance your auto loan to have a lower monthly payment. If you have a monthly budget, the lower payment can help relieve some of the pressure on it. If you don’t have a budget, consider creating one so that you can better manage all of your finances.
The time left on your loan is number six.
In the short term, refinancing and extending your loan term can lower your payments and put more money in your pocket each month — but in the long term, you may end up paying more in interest. Refinancing to a lower interest rate for the same or shorter term as you currently have will, on the other hand, result in you paying less overall.
Take a look at our current to refinance rates as well as our auto loan refinance calculator to get a better understanding of whether refinancing makes financial sense for you. If you answered “Soon,” review our auto refinancing calculator to get a better understanding of whether refinancing makes economic sense for you.
Fees those are not included in the price
There may be fees associated with refinancing your auto loan, which could raise its cost. Prepayment penalties, which are fees charged for paying off your loan early, may be assessed by your current lender.
There may also be small fees for re-registering your auto loan with the state and for transferring the lien, but these are usually negligible in comparison to the overall cost of your loan.