When’s the Best Time to Refinance a Car Loan?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - March 7, 2019

Did you know that there are good and bad times to refinance a car? Timing is important, and although you can’t immediately refinance your bad credit auto loan, you should be able to refinance after a couple of years have passed if you’ve made all your loan payments on time and your credit score has improved.

The Ideal Time to Refinance Your Car Loan

Are you in the middle of a bad credit car loan and wondering if now’s the right time to refinance? The main goal of refinancing is to make your monthly payment more affordable and/or get a lower interest rate. If one of these two things has happened, and you’re hoping to make your auto loan cheaper, you should consider refinancing your car loan:

  1. Your credit situation improved – If you’ve been proactive about making all your payments on time, and noticed your credit score improved since taking out the initial loan, refinancing could help you lower your monthly payment by getting you a better interest rate.
  2. Your financial situation changed – If your credit hasn’t improved much, but your financial situation has gone south, you may be able to lower the monthly payment by refinancing and extending the loan term. Keep in mind that a longer loan term means paying more in the long run.

If your financial status has improved but your credit hasn’t, you can simply pay more each month, which pays off the loan faster and reduces the interest charges without you having to deal with the refinancing process.

When You Should Wait to Refinance Your Car Loan

Just because some time has passed and your credit score has improved doesn’t mean it’s always the best time to refinance. There are a few factors that can disqualify you from refinancing, including:

  1. Having an old car – Lenders have an age and mileage cap on vehicles they’re willing to refinance. The older the car is, and the higher the mileage, the less likely a lender is going to approve you for refinancing.
  2. Being upside down – If you have negative equity, or owe more than the vehicle’s worth, you’re going to find it difficult to get approved for refinancing. Make sure your car has equity before you decide to refinance.
  3. Having pre-payment penalties – Although rare, if you have a pre-payment penalty on your current loan, refinancing may not make the most sense if this cancels out any potential savings.

The bottom line is to make sure you analyze your situation and discuss with different lenders whether or not refinancing is a viable option for you.

Looking to Get Auto Financing?

On the other hand, maybe you need a car loan. If you’re worried about your bad credit getting in the way of getting approved for auto financing, don't lose hope.

CarsDirect works with dealerships all over the country that are experts at helping people in many different types of credit situations, including repossession and bankruptcy.

With a bad credit car loan, you can get the financing you need and work to improve your credit and refinance for a better rate in the future. Complete our easy and free auto loan request form online to get the process of getting matched with a dealer near you started today.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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