Barring the joy of owning a new vehicle aside, there might be other things on your mind when you commit to a car loan. One of these is deciding whether it’s too soon to auto loan refinancing. Well, while it’s possible to refinance a car loan at any given time, there are many factors to consider before you proceed.
Let’s take a deeper look.
Do Lenders Refinance Immediately?
While it is possible to refinance a car loan whenever you like, the hard part is coming across a lender who’s willing to approve your new loan. This could be challenging since most lenders only consider doing so if the original auto loan has been open for at least three months.
Hence, at times, one of the biggest obstacles to refinancing an auto loan is delayed approval from the lender. However, once you’ve moved past the phase, you’ll have a lot more benefits to look forward to. Here is some additional guidance to help you understand the right time to refinance a car loan.
After the First 60-90 Days
Since it can take up to three months or 90 days to transfer the title from the previous owner to the current lender, it’s recommended to apply for an auto refinance after 60 to 90 days. Moreover, most lenders will outright refuse your application if the titles haven’t been transferred.
After Your Credit Score Has Improved
In the end, your credit score is the biggest factor determining your new loan terms, and if it hasn’t improved since you qualified for the first loan, you may have to wait a little longer. Sometimes, hard inquiries on your credit report also result in a temporary dip, causing you to land a higher interest rate. So, unless you have an exceptional score, you may want to wait till it has recovered.
With At Least 6 Months Into Your Loan
The only credible explanation behind waiting is to ensure you have enough time on your hands to improve your credit score. After all, the goal is to land a lower interest rate and better payment terms.
However, if you’ve had any credit issues in the past, it may be reasonable to wait for a year before you consider auto refinance. This way, you’ll have enough time to build a better history of on-time payments since most lenders need evidence of at least six to twelve months of prompt payments before approving your application.
With At Least Two Years Left On the Loan
If you want to get the most out of your auto refinancing, you must have two years or more remaining on your car loan. This is because if you’ve already paid enough interest at the beginning of a loan term, you may not get much out of refinancing too late.
The Bottom Line
In the end, every lender’s requirements differ, and the only way to refinance effectively is by having open communication with your existing and the new lender. However, the factors that usually come into play when determining your new loan terms are the remaining balance on your loan, the remaining number of months on the loan term, the age and mileage of the car.