When Should You Refinance Your 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.


, - January 18, 2018

Refinancing a car loan is a great way to save money. But, timing is everything when it comes to refinancing.

What is Refinancing?

When a borrower refinances their car loan, it means they’re replacing their old loan with a new one. The new loan features a new contract between the lender and borrower. Most borrowers choose to refinance for a lower interest rate or in order to save money on monthly payments.

Refinancing a loan may also give the borrower the option to change the loan term. Depending on their financial situation, they could choose to extend or shorten the loan term to fit their budget.

The Best Times to Refinance

When deciding whether or not to refinance, take these common scenarios into account to see if it’ll help:

  • Improved credit score – Whether negative information has been dropped, or the buyer has taken steps to improve their credit, a higher credit score may qualify them for a better interest rate. The better the APR, the more money the buyer can save during the loan term.
  • Interest rates have dropped – Because interest rates are dependent on the Federal Reserve, they can drop at any time (although there’s usually plenty of warning). If rates have dropped since taking out the initial loan, the buyer could qualify for better rates even if they haven’t improved their credit profile.
  • Changed financial situation – If the borrower gets a higher-paying job or a raise, refinancing may be a great next step. The borrower may be able to refinance and lower the term of their loan for faster payoff. On the flip-side, if the borrower finds themselves in a financial bind, they may be able to extend their loan term to lower monthly payments.

Bottom Line

Refinancing is a great way to help a borrower save money if the situation is right. Just be aware that timing is everything, so make sure you’re ready and committed.

If you're dealing with bad credit, no credit, or other credit issues and are looking for a car loan, CarsDirect wants to help. We're teamed up with a nationwide network of car dealers that know how to work with consumers in unique credit situations, and we want to connect you with a dealer near you. Get the process started by filling out our auto loan request form 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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