Most people try to go for auto refinance when they are looking to reduce the amount of money they pay in interests, reduce the monthly payments if they are strapped for cash or are trying to redirect their money to other places. Whatever the reason you have for auto refinancing, here are six things you should consider before deciding to close the deal.
1. Refinancing Rules
Every lender or bank has its own rules regarding auto refinancing. Therefore, it is important to know them to get the best deal. For instance, most states in the U.S. require at least $7,500 remaining on your car loan to go ahead with auto refinance.
Moreover, the car being refinanced needs to be less than ten years old and have less than 125,000 miles on it. Some banks may have other rules apart from these standard rules, which can only be known by sitting and inquiring everything with a clerk.
Some banks impose penalties on people paying off their loans early. Therefore, when going for auto-refinancing, look out for such penalties. If the money you save by refinancing your car is less than what you end up paying in penalties, then it is not worth refinancing your car.
3. Interest Rates
Interest rates are the most important factor when it comes to auto refinancing. Compare and contrast the interest rates today with what they were at the time you took out your first car loan. If the rate is lower, then it is definitely a good choice to refinance your car. This is because even a small difference can save you a decent chunk of money, especially if you obtained the loan recently.
4. Credit Score
Credit scores are checked by lenders when giving out car loans. If your credit score has improved since the time you took out the loan, then it may be worth going for auto refinancing.
It is normal to experience a reduction in disposable income from time to time. If you are struggling to pay off the monthly installments for your car loan, it is a good idea to go for car refinancing as it can help bring down the monthly payment.
6. Loan Term Remaining
If the time remaining on your loan term is less than a quarter of the whole term, it is better not to go for refinancing. This is because most loan agreements have front-loaded interest payments meaning you have paid almost all the interest in the loan already. Try going for auto refinancing as early as possible in the life of the loan.