Learn how refinancing may give you financial flexibility
When is the best time to refinance? Well, have interest rates dropped since you took out your auto loan, or has your credit score improved? Those are two common motivating factors for a loan refinance. Refinancing an auto loan involves taking on a new loan (with your current lender or a different one) to pay off your existing loan and secure new terms. These terms typically are a benefit to you, like a lower interest rate or a different repayment period, that may save you money in the long run. Let’s take a look at some other benefits of refinancing.
- Extend your budget - Securing a new loan with a lower interest rate may result in a lower monthly payment and more savings in your pocket. If your credit score or debt-to-income (DTI) ratio has improved, you may qualify for rate reductions as well.
- Modify repayment term - If your financial situation has changed and you’re able to allocate more of your budget toward an auto loan payment, consider refinancing into a shorter loan term to pay off the loan sooner. On the other hand, if you’re struggling financially and you need some breathing room, consider a longer repayment period to decrease your monthly payments. However, if you lengthen the term, it may increase the amount of interest you pay over the life of the loan.
- Adjust rate type - Auto loans can have variable or fixed interest rates. Variable rates typically change with the market rate, while fixed rates are locked in at closing for the entire loan term. Perhaps you have qualified for an adjustable interest rate on the initial loan, but you’d like to move forward with a more stable monthly payment, then refinancing into a fixed rate loan could be right for you.
- Add or remove a co-signer - Co-signers provide assurance to the lender that the loan will be repaid, even if you, the primary borrower, cannot fulfill the payment obligation. This may help first-time borrowers who may not have enough credit or payment history to be approved on their own. Having a co-signer may help you qualify for a lower interest rate depending on their credit score. Refinancing without a co-signer may be an option if you have established a consistent payment history.
Refinancing is a great opportunity to make your loan terms a better fit for your current financial status. It’s important to note lenders may charge fees to refinance, plus they may have limitations on the mileage or age of the vehicle they will approve. Be sure to review your payment and credit history, and consider your financial goals before moving forward. Try our loan refinance calculator to see how various rates can impact your monthly payment, and if you have questions, our consumer lending team is available to help!
