Refinancing your auto loan so you have a lower monthly payment can make sense if your income has dipped. Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
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Your day rate lock Footnote 1 gives you plenty of time to shop. View rates, calculate payments and apply for a low rate loan. Purchase, refinance and lease buyout loans available. Effectively, by refinancing with this new loan term, you will be paying for this car for a total of 60 months adding the new 48 month loan term to the one year 12 months you were paying it off with the old lender.
So, what would the financial impact of a car refinancing have on how much you pay for your car? Now, your first payment on the new refinanced loan occurs in what would have been the 13 th month of your old loan. If you would like to know more about how any of the numbers in this article are calculated, read this article on how car loan interest works.
The graph below depicts how you would pay down your car loan s in this example with and without refinancing. Notice how the car loan balance with refinancing line in orange falls at a slower pace over the loan term than the car loan line without refinancing in blue. Because, in this example you extended your loan term, you pay less of your principal each month and have more time to accumulate interest charges. As a result, you pay off your loan at a slower pace than before refinancing.
Please note, you should always make your car loan payments as scheduled even if you are in the middle of the refinancing process. Moreover, just because in this example you make your last payment on your old loan in month 12 and make your first payment on your new loan the next month does not mean that the car loan refinancing process can always be completed in the time span between car loan payments. When and if you choose to refinance, you may or may not change the length of your loan, and your interest rate does not necessarily have to change — although most of the time it will.
Ultimately, every car refinancing deal is different and every refinance customer has personal motivations for refinancing. For this reason, you may benefit greatly when you work with an auto loan company that takes the time to learn about your needs and will match you with a car loan that meets those needs.
The short answer is whenever you want. But there are more factors at play than just timing. You must be sure the numbers work out in your favor, and you must approach a refinance with every advantage available to you.
If you wish your auto loan payment were a bit lower, you may be inclined to try to find your way out of the deal, even if it means trading down or starting over. Depending on the vehicle and your financial situation, that might be the best option. But you should first consider refinancing your auto loan. If you have determined that refinancing your auto loan is the right move at the right time, it is wise to understand the impact an auto loan refinance will have on your credit report.
In the short term, the hard credit inquiries registered by new finance sources will lower your score by a few points. How Does Car Refinancing Work? If you are in a situation where you feel your interest rate may be too high, your payment too much, or you simply want to see what your options are, an auto loan refinance may be exactly what you need.
Now that you understand how simple the process is and what to look for to determine when it is or is not a good idea to refinance, take the next steps to lower your current rate.
Click here to start your refinance application online! Money Peach partnered with OneAZ to provide free financial education to members across the state. Get Started. Rates include a 0. Phoenix - Monroe St. Open a New Account New Account. Member Care Center September 03, What is an auto refinance?
What are some reasons why I should refinance my current auto loan? Car owners will generally refinance their auto loans for three different reasons.
Lower the interest rate Lower the monthly payment Decrease the amount of time to pay off the loan the term. When should I refinance my auto loan? When should I avoid a refinance for my auto loan?
How long does an auto refinance take? Is my credit pulled when I apply for an auto loan refinance? If I shop around for rates, will that hurt my score more? What information will I need for my auto refinance application?
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