Should I Refinance My Car Right Now?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - April 29, 2020

Right about now, people who are struggling financially may be thinking about refinancing their auto loans to save a little cash. Though it’s perfectly logical to think this way when times get tough, like the current economic landscape due to the coronavirus, a crisis may not be the best time to switch car loan contracts.

Refinancing With Different Loan Terms

If you need to reduce your monthly payment right now, due to complications from COVID-19 or for any other reason, refinancing shouldn't be your go-to move. Refinancing means replacing one auto loan contract with a different one with a better interest rate and/or a longer term. The main reason people do this is to reduce their monthly car loan payment.

In order to refinance, you, your vehicle, and the loan amount all need to qualify with a lender. If you need a break on your payment due to reasons surrounding the coronavirus, you may not meet the qualifications. Plus, if you only qualify to extend your loan term, it may end up costing you more in the long run.

Qualifying to Refinance a Car Loan

In order to qualify for refinancing, you generally must have had your auto loan for at least one year, and your credit score must have improved over that time. You also have to have equity in the car, which means you owe less on your loan than the vehicle is worth. If you don’t meet these requirements, you aren't going to be able to refinance.

Your car must also fall within the lender’s acceptable range for both age and mileage, and they must also agree to refinance the loan balance. Not all lenders have the same qualifications, so not all lenders are right for every refinancing situation.

Lastly, in order to refinance your current vehicle, you have to be current on your loan. So, if you have already missed a payment due to issues caused by the COVID-19 pandemic, refinancing isn't for you. However, you may not need to refinance to get the help you need in these trying times.

Alternatives to Refinancing

Refinancing isn't for everyone. Fortunately, lenders are often more willing to help their customers than you may think, especially in tough economic times. This is one reason your first line of defense against missing a monthly payment should be to contact your lender.

Your lender wants to avoid a loan default just as much as you do. Because of the coronavirus, many lenders are working with customers to help defer, or push back, payments that they aren't able to make right now. This doesn't make the payment disappear – they're simply moved to the end of the loan as a temporary pause.

Deferment typically lasts anywhere from 30 to 90 days, depending on the lender and individual situation. Right now, due to the COVID-19 outbreak that's slowing the American economy, some lenders are even allowing their customers 120-day payment deferment options. Contact your lender for more information about how they can help you avoid default if you're having trouble making payments.

If neither refinancing nor your lender can help ease the strain of your auto loan payments, your last option is to trade the car in for something more affordable.

Find a Dealership Near You to Work With

Decided that a trade-in is the right option for you, but don't know where to start your search? Turn to us at CarsDirect. We're teamed up with a nationwide network of special finance dealerships that work with lenders that can help credit-challenged consumers.

We know that getting out and car shopping isn't high on your list of priorities if you're sheltering in place, but we can help you get the process started by guiding your research through our new and used car pages.

When you're ready to start the loan process, you can do that from the comfort of your own home by filling out our fast and free auto loan request form. We'll work to get you matched with a local dealer that knows how to help.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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