Looking for ways to lower your expenses and save money? Refinancing your car loan could be the answer. While refinancing a home mortgage can be a complex process, refinancing a car loan is quicker and easier.
People may not consider taking this step because savings from refinancing an auto loan aren’t as dramatic as those from a mortgage refinance, since car loans are smaller and shorter-term. However, refinancing could still be worth considering if:
- Your credit score has significantly improved.
- You didn’t shop around for the best financing rate the first time around.
Refinancing Your Car 101
Before embarking on refinancing, consider these steps:
Review Your Credit
Take a look at your current rate. Could it be lower? There may be reasons why your current rate might be higher than necessary:
- Your credit score may have improved since you took out your loan.
- If you financed through a dealer, you might have an inflated rate.
It’s essential to shop around for auto financing before you even step foot in a dealership. Consider securing a loan from a credit union like Nymeo or a bank beforehand.
Monitor Your Credit
In the months leading up to your refinance, be mindful of your credit score. It will directly impact the interest rate you qualify for, so make sure to:
- Pay bills on time.
- Keep credit card usage to 30% or less of your available balance.
- Avoid applying for new credit cards or loans if you’re planning to finance a large purchase like a car or a home in the near future.
- Don’t close old credit card accounts you’re not using.
Shop for the Best Rate
When you’re ready to refinance, compare rates from various financial institutions. If you originally financed through a dealer and suspect you can get a better rate, you can refinance right away. Keep in mind that not all lenders who offer auto loans also provide refinancing, so be sure to explore your options.
(At Nymeo, we encourage our members to reach out and see whether they can save by refinancing their current loan. It’s a simple step, and we’d be happy to help you save money.)
Avoid Extending Loan Terms
While extending the term of your loan might reduce monthly payments, it will cost you more in interest over time—even with a lower interest rate. It’s best to keep your new loan term equal to or shorter than the remaining term of your original loan if possible.
Overall. refinancing your car loan may not always result in massive savings, but it can still make a noticeable difference in your finances, especially if your credit score has improved or you didn't secure the best rate initially. Remember, even small savings add up, and taking the time to refinance could lead to significant financial benefits in the long run.
Category: Financial Literacy & Safety
