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Publish Date - September 28, 2021

Author: Greg Thibodeau

Categories:   Auto Loans & Financing    Refinance To Save   

5 Reasons Why Now Is the Time to Refinance Your Existing Auto Loan

Refinancing your existing auto loan can save you money and strengthen your financial situation. With the market favoring borrowers, now is the perfect time to think about refinancing. It’s time to shop around!

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Refinancing your existing auto loan can save you money and strengthen your financial situation. With the market favoring borrowers, now is the perfect time to think about refinancing. It’s time to shop around!

The market as well as individual situations change and what worked when you first got your auto loan may not be the best option for you anymore. Being wise with money means being on the lookout for ways to get your money to work for you. Here are 5 reasons why you should consider refinancing your existing auto loan right now.

1) Lower Your Interest Rate

Refinancing your existing auto loan can lower your interest rate. Refinancing at a lower interest rate means paying less interest on your loan, lowering monthly payments, and allowing you to pay a loan off faster. The interest rate you pay is primarily influenced by the current prime rate, your credit score, and your lender.

Now is a great time to think about refinancing your existing auto loan because the prime rate is at a very low 3.25%. The prime rate is usually about 3% higher than the federal funds rate which is currently 0% to 0.25%. The federal funds rate is the percentage that banks charge one another on short-term loans.

Another way to get a better interest rate on your loan is to improve your credit score. A person with a credit score of 660 and above is more likely to receive a better interest rate. If you have been paying your debts on time, your credit score may be better now than it was when you first negotiated your auto loan.

Lenders are as different as the borrowers they serve. Different institutions have varying policies that can significantly influence how much interest they charge on loans. It’s worth shopping around to see what kind of deals you can get to reduce your payments and keep more money in your pocket.

2) Extend Your Term

Another way to reduce your monthly payments is to extend the term of your loan. Refinancing your existing auto loan for a longer term means you will be paying your loan for a longer time but your payments will be significantly lower. If you’re struggling to make ends meet, or if you just want more money in the bank at the end of the month, then extending the term of your loan is a good option.

It is usually best to go with the shortest term that you can afford because longer term loans often get a higher interest rate. However with interest rates currently being so low, now is the best time to extend your term if you need to. It might end up saving you more money if you redirect funds to other higher interest debts.

3) Lower Your Payment

How much you will have to pay every month on any loan is primarily determined by the interest rate, loan term, and the principal amount. Some of these factors are determined only by you but others can be greatly affected by your lender. If you’re looking to lower your monthly payments https://www.myautoloan.com/rate-widget-v1.html you will need to make wise choices and shop around.

The interest rate that a lender charges you on your loan translates to more money that you owe on top of the money you borrowed. Lenders are not created equal and it can really pay off to shop around for the best interest rate. The amount lenders charge is affected by their individual policies and practices but also by the market rate.

The amount of time you need to pay back your loan also affects the amount of your payments. A longer term means more payments stretched out over a longer period of time. While longer terms generally mean higher interest rates, they also mean lower payments and more cash staying in your pocket each month.

Another way to lower your monthly payment is to reduce your principal amount. The principal amount is the funds you intend to borrow in the first place. Borrowing less means paying less interest, a shorter term, and lower payments. If you have a bit of savings you can make it work for you and end up making smaller payments by refinancing your existing auto loan with a smaller principal amount.

4) Shorten Your Term

If you can afford to make larger payments, you should consider shortening the term of your loan. This means paying more each month but getting your loan paid off sooner. It’s more cost efficient to choose the shortest term that you can handle.

Shorter term loans usually get lower interest rates as they represent less risk to the lender. Your monthly payments will increase but you will be paying less interest over the life of your loan which means less money for the lender and more money for you. Shortening the term of your loan is a good idea if you can afford it.

5) Cash Out, Pay Down Other Debt

If you’re refinancing your existing auto loan and you’re getting a good deal, it might be a good idea to choose a cash-out refinancing option. A cash-out refinance means that you are borrowing more money than you owed on the previous loan. You will end up with enough money to pay off your existing loan and have some cash left over.

A larger loan may mean a higher interest rate, larger payments, and a longer term but if you’re getting a good deal there are times when cash-out refinancing is a good option. The best example would be if you have other debts that you’re paying more interest on. If you can reduce your overall debt you may end up paying less each month even though your auto loan payments increase.

The right auto loan is the one that works for you and your individual circumstances. Start thinking about refinancing your existing auto loan to get the most out of your money. Do you want to find out what refinancing can do for you? Compare and save with myAutoloan.com.