If you’re pondering the question of refinancing your car there are a few things you need to consider before moving forward. If you follow the list below you will either save yourself a lot of money or a lot of grief.
To determine whether or not you should refinance your car, factor in the following variables:
- How long you’ve owned the car – If you’ve just purchased your car within the last month or so, and you’ve found a better financing deal at a credit union or online lender then by all means refinance as long as the other criteria below do not throw a wrench into your gearbox (pun intended).
- Your current interest rate – If your current rate is less than desirable (you financed when rates were high) and rates have come down quite a bit then possibly consider refinancing, if all or most of the other variables are favorable.
- Your new interest rate – If your credit score is good to great you should be able to get a low interest rate but keep in mind that if you’ve had your car for any length of time it’s now a “used car” and you won’t get as good of rate on it as you would if it were a new car.
- Will your new rate be fixed or variable – A variable rate will fluctuate with economic trends. What might start out as a low interest rate may not stay that way so be aware of that when considering auto refinancing.
- How much you still owe – If you’ve had your car for a short time and you still owe a lot then refinancing might make sense. If you’ve only got a year to go on your payments and making them hurts but doesn’t put you down for the count, you may just want to take the pain and finish out the loan you currently have.
- Prepayment penalties – Is there a prepayment penalty for paying off your current or (possible) future loan early? If there’s a prepayment penalty on either one of these loans you’ll want to weigh your options carefully before you proceed. A lower interest rate may not compensate for the prepayment penalty you get stuck with.
If there is no prepayment penalty on your current loan, are you in a situation where you can pay even a little bit more than you currently do each month? If you can afford to do this, and there’s no prepayment penalty then your current interest rate loses some of its significance, and you might be better off to just stay put and make larger payments.Let’s face it, cars are money pits and there are people out there who will tell you it’s not really a good idea to finance them once, let alone twice but there’s this thing called life, and according to one commercial on TV it “comes at you fast”. If that’s true (and it is) then just think of (re)financing as a way of “ducking for cover” when paying cash isn’t an option.