Auto refinancing is an option most people consider when they want better terms and rates. However, there are certain situations where it won’t be wise to consider it. Here are some of them:
Your Car Is Old
Finding a lender is difficult if your car is older than ten years. Most lenders have a set limit on how old the car should be to qualify for the loan.
You owe more than what your car is worth
If you’re upside down on your loan, it is probably best to avoid going for an auto refinance as it won’t land you any better terms. It poses a significant risk to the lender as a portion of the loan is beyond the collateral. Moreover, you may have to deal with a much higher interest rate costing you more in the long term.
The Car Was Purchased Less Than 3 Months Ago
If six you purchased your car less than six months ago, avoid going for an auto refinance. This is because your credit score needs time to recover from the first loan. During this time, it’s best to build up a payment history and work on any depreciation that happened when you purchased your car.
The Car Is Brand New
Even if you bought your car only a month or two ago, it will come under the category of “used cars”. Therefore, your new loan will bring a higher interest rate because, technically, you’re getting a loan for a used car. It is highly unlikely that you will have a lower rate than what you have currently.
There Are Prepayment Penalties on Your Loan
Even though most lenders don’t, some pose a penalty if you pay the loan off earlier. Therefore, you will have to reconsider your decision to auto refinance if your current loan comes with prepayment penalties.
If it is necessary to refinance your car and improve your cash flow, you may do it to be in a favorable financial situation. As soon as your personal finances stabilize, pay down your auto loan faster by making extra payments unless there are prepayment penalties on the new loan. On the whole, you can save yourself some interest expense by paying your auto loan off sooner.