People refinance the loans on their homes quite often. But what about refinancing your car loan? Although it might surprise you, this is nothing unusual. In fact refinancing your car loan is far easier than trying to refinance your mortgage. Here’s what you need to know about it.
When is it a good idea to refinance your car?
In some cases, refinancing your car loan may be a good idea. One such situation is when you’re looking to take advantage of lower interest rates. By doing it, you can lower your monthly payments and also decrease the amount of interest you have to pay on the loan.
Another good time to refinance your car loan is when your credit situation has improved significantly compared to the moment when you purchased your car. If your credit score has improved enough, it might drive down your interest rate. And this also means lower monthly payments and less interest.
Finally, you might also want to refinance in order to get a shorter loan term. Although your payments will likely be higher, at least you’ll pay off your car sooner and spend a lot less on interest.
When not to think about refinancing your car
There are also some situation when refinancing your car is definitely not a good idea. If you’re existing loan includes a pre-payment penalty, then it’s better to check and see if refinancing can really help you. If it doesn’t, then you should stay away from it. There’s no point in just throwing money away.
Another time you might want to avoid refinancing your car is when you end up extending the loan’s term. Don’t underestimate the benefits of debt free living. So try to resist the temptations of lower monthly payments. You won’t regret it in the long run.