For most people, owning and driving a vehicle is not merely a luxury but a necessity. In today's fast-paced world, life can be quite hectic if you don't have your own mode of transport. Although 95 percent of American households own a car, not all prospective car buyers walk into a car dealership and write a check or pay out of pocket. A huge number of people need a little financial assistance to make the purchase. According to a CNN Business report, 107 million Americans have car loan debt, which is about 43 percent of the entire adult population in the United States. If you borrowed money to purchase a car, whether it's a brand-new Lexus or a used Subaru, it's smart to verify that you're not paying more than you need to. You can end up saving money by refinancing your car loan, and it pays to know how that process works. Read on to find out when and how to refinance a car loan.
What Does It Mean to Refinance a Car Loan?
In simple terms, car loan refinancing means replacing an existing car loan with a new one. The refinanced car loan is basically a fresh contract, usually with another lender, that gives the borrower the opportunity to agree to different terms.
The important question here is - how soon can you refinance your car loan? Is it after six months? One year? Or is it five? Well, there's no straightforward answer to that question because the situation is unique for each borrower.
Factors That Will Determine How Soon You Can Refinance Your Car Loan
If you're asking yourself, "When should I refinance my car loan?" consider these four factors to help you decide if you should refinance now or wait a little bit longer:
1.Your Credit Score
One of the factors that have a direct impact on car loan rates is the borrower's credit score - the higher your credit score, the lower the interest rate on your car loan. A higher score boosts a lender's confidence that you'll pay your loan on time. Thus, they will be willing to qualify you for a lower interest rate. Conversely, a low credit score will make it harder to secure an auto loan. Additionally, your interest rates may be higher.
Considering that your credit score impacts the interest rates you qualify for, consider your current score before refinancing. Has your credit score got better since you took out the car loan? If your credit score has improved, you're likely to qualify for a lower interest rate and APR. Depending on the starting score, an increase of 80 points or more could help you refinance a car loan at a better rate.
2. Current Market Rates
Like with other types of loans, interest rates for auto loans tend to change from time to time. There are several forces behind these changes, and one of them is the supply vs. demand of credit. For instance, a decrease in the demand for credit will reduce market rates, while an increase in demand will increase them. Conversely, a decrease in the supply of credit increases the market rates, while an increase in the supply of credit will reduce them.
Another force behind interest rate changes is the inflation rate. The higher the inflation rate, the higher the interest rates borrowers can expect to pay. Also, the government has a say in how much interest rates borrowers should pay. The U.S. Federal Reserve often makes announcements regarding how monetary policy will affect interest rates.
To determine whether it's the right to refinance, you have to pay attention to the current market interest rates. If the interest rate you qualify for today is equal to or higher than your current loan rate, it's not the right time to refinance. However, if the current market rate is significantly lower than your current car loan rate, it may be the ideal time to refinance a car loan. Even a drop of one or two percentage points could result in a decent saving..
3. Your Financial Situation
If your financial situation is the same, it might be best to retain your current loan. However, if there are any changes to your financial situation, refinancing your car loan may make more sense.
For instance, if your income has increased, refinancing your used auto loan so you have a higher monthly payment and a shorter repayment period might work for you. Conversely, if your income has taken a dip, refinancing your car loan so you can have a lower monthly payment might be best.
4. Availability of Better Terms
Car loan terms and costs vary widely from lender to lender. If you compare multiple lenders, you will see a variation in terms of the time it takes to fund loans, repayment timelines, interest rates, and fees. Even if you have an existing car loan, your hunt for a better loan offer should not stop. If you didn't get the best deal to start with, refinancing with a lender like PrimeWay may give you better terms.
Refinance Your Car Loan With PrimeWay Today!
Have the interest rates dropped since you took out an auto loan? Has your financial situation changed such that you can afford to pay the car loan quicker? Or, have you come across PrimeWay and realized that we are offering better terms than you initially got?
If you have answered any (or all) of these questions in the affirmative, refinancing your car loan is one of the best decisions you can make. Apply for PrimeWay auto loans and start saving today.
At PrimeWay, we often use new car rates to refinance loans. If it's your first car loan and you have paid for 12 months or more, you may be able to get a better rate. You should check the calculator to see how much lowering your rate by 1% will make.
Contact us or call a rep at (713) 799-6200 or (800) 554-5690 and see if you can benefit. You should also use our auto loan calculator to see how much you can save.
