Refinancing your car could offer a major boost for your budget, but grab the wrong deal at the wrong time, and you could end up paying hundreds of dollars more than necessary. The right time to refinance a car is different for everyone—it has more to do with your personal finances than it does with current interest rates; or that great deal your neighbor just got on his new car.
We recently spoke with Sean Worthy, director of automotive sales and business development at PenFed Credit Union, and asked him if he could provide us with a few tips to consider before taking the plunge.
“Take a look at your current loan financing,” said Worthy. “Have interest rates lowered since? Do you think you could have gotten a better rate if you financed that same car today? Has your credit score recently improved?”
“These are all really good questions to ask yourself when considering if refinancing makes good financial sense,” Worthy advised.
So when is refinancing your car worth it?
Let’s take a look.
When interest rates are low. Nice, low interest rates are the classic cue for refinancing. If your original purchase was made at a much higher interest rate, the choice to refinance looks fairly straightforward.
When you’re window shopping for a good interest rate, be sure you’re comparing apples to apples—many banks consider a refi a used car loan, and the interest rate they offer will be correspondingly higher than the low rates you’re seeing for new cars. Look for a lender like PenFed Credit Union that offers car refinancing for both new and used cars.
When your original loan financing wasn’t such a great deal. When you know better, you do better—and sometimes, a do-over is in order. If you walked out of the dealer with a fantastic new car on a not-so-fantastic note, you might save yourself a nice chunk of change over the next few years by refinancing now.
When your finances are on the upswing. If you bought your car under the pall of a low credit score that has since improved, you might qualify for a significantly lower interest rate. Check your current credit score to get an accurate picture of your current standing. AnnualCreditReport.com is a good place to start. If things look good and you have a spotless on-time payment record for your vehicle—it might be smart to refinance.
When your finances are tight. On the other hand, sometimes money gets tight and you need to shuffle things around to make ends meet. Refinancing offers an opportunity to stretch out the term of your car loan, decreasing monthly payments in the process. You’ll end up paying more in interest over the long haul, but when you need to tighten your belt, this strategy can help.
Are you ready to refinance?
If you suspect it might be time to rerun the numbers to see if refinancing makes sense, hit PenFed Credit Union’s auto loan calculator to experiment with the variables: loan amount, loan term, interest rate, and monthly payment.
If the conditions are right, the right refinancing terms could save you over the life of your car loan.