Refinancing a car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. Refinancing your car could potentially save you money by lowering your monthly car payment or decreasing the amount of interest you pay. Here are some reasons why you might consider refinancing your car:
-
Lower interest rate: One of the best reasons to refinance a car loan is to lower your interest rate. A lower interest rate can help you save money on the cost of the loan over time.
-
Lower monthly payments: If you need to free up more room in your monthly budget, refinancing your auto loan can help you reduce your monthly expenses by extending the loan. Lengthening the life of the loan by 1-2 years can significantly lower your monthly payment.
-
Improved credit score: If you financed your car with a low credit score, refinancing your car could get you a better interest rate or even reduce your monthly payment.
-
Interest rates have dropped: If interest rates have dropped since you first took out your car loan, refinancing could help you take advantage of lower rates.
However, refinancing a car isnt for everyone, and deciding when to refinance can be challenging. The benefits of refinancing might be limited or non-existent in certain instances. For example, if you have a poor payment history on your current loan or are close to paying it off, it may not be to your advantage to refinance. Some circumstances could prevent you from refinancing an auto loan, or mean doing so may not be the best option. You may want to hold off if:
- Your car’s mileage exceeds 100,000, the vehicle is over 10 years of age or you fail to meet other refinancing requirements.
- You’re upside-down on your loan.
- You’ll incur prepayment penalties for paying your loan off ahead of schedule.
- You’re almost done paying off the loan, and refinancing means you’ll pay more in interest.
Refinancing your auto loan may help you save money over the life of the loan, but its important to consider your individual circumstances before making a decision[[6]](https://www.nerdwallet.com/ar...
