Most people know that refinancing a home loan can save a lot of money by lowering their monthly payment or interest rate. However, not as many people know that refinancing a car loan is a simple process that can provide the same benefits. In fact, an auto loan refinancing application can be completed online in about 10 to 15 minutes. From an improvement in your credit score to a drop in average interest rates, find out when’s the right time to refinance your car loan.
When to refinance a car loan
Before you start the process, you’ll need to determine whether your goal is to reduce monthly payments for short-term savings or lower your interest rate for long-term savings. Refinancing can accomplish either option to meet your financial needs.
Consider refinancing your auto loan if:
- Interest rates have dropped. If the average auto loan interest rate has dropped more than a couple of percentage points since the time you purchased your vehicle, you could save a lot of money by refinancing. Use our auto refinance calculator to get a better idea of how much you could save by refinancing.
- You paid too much for your vehicle financing. The two most important things to consider are the interest rate and principal, or total amount, of your auto loan. If your loan balance is greater than $7,500, and auto refinance rates can reduce your current interest rate by at least 1%, refinancing may be worthwhile.
- Your credit score has improved. You may have had a low credit score when you initially received your auto loan that has since improved. If you've recently eliminated a large amount of debt, consistently paid your bills on time each month, or have experienced other life events that had a significant, positive impact on your credit score – you could qualify for a lower auto refinance rate.
- Your budget has changed. While extending the length of your car loan may reduce your monthly payments, it could actually cost you more money over time. But if you’re in a financial pinch and need extra money for unexpected expenses, the lower payments could help you make ends meet. Just make sure you understand that you’re exchanging short-term debt relief for long-term expense. Keep in mind that a refinanced auto loan will qualify as a used car loan, which is usually at least one percentage point higher than a new car loan. Some lenders, like Nationwide Bank®, offer the same interest rates on a refinanced loan as they do on a new loan, so be sure to check the rates of the bank you’re considering.
Other auto refinance loan considerations
Other things to consider before you refinance your auto loan are:
- Timing. The sooner you refinance, the more you'll save. If you wait until the third year of a five-year loan, you won’t save as much as if you had refinanced (at the same rate) during the first year of your auto loan.
- Value. Find out the value of your car before you apply to refinance your vehicle. Based on the lender, if your refinanced car loan is higher than the value of your vehicle, your loan may not be approved and you will need to find another solution.
- Owner. When an auto loan is refinanced, the new loan must be in the same name as the current one.
Nationwide makes refinancing a car easy. Learn more about refinancing your car and the steps you need to take to apply online today.