Will refinancing my car loan save me money?
Budget-conscious borrowers are always on the lookout for ways to save money on their debt, including what they pay in interest on their auto loans. Replacing an existing car loan with another one at a lower interest rate can help you decrease your expenses. So when should you consider refinancing your car loan? One of the most popular times to consider an auto loan refinance is when interest rates dip. However, there are a few other times when you may have the ability to reduce the interest rate you pay on your auto loan.
Interest rates have dropped
Interest rates fluctuate frequently in today’s economy. If your timing is right, you may be able to benefit by securing a lower interest rate on your auto loan. Unlike mortgages and business loans, applying for an auto loan is a process that can be completed quickly. With auto loan terms up to seven years, you have the opportunity to save a significant amount in interest over the life of your loan.
Improved credit scores and DTI
Credit scores and debt-to-income (DTI) ratios are considered a reflection of a borrower’s ability to repay a loan, and they have an impact on the interest rate offered. Borrowers with high credit scores and low DTI ratios often get the best rates. Borrowers with low credit scores and high DTI ratios will generally pay higher interest rates. However, a borrower’s financial position can change.
Paying bills on time, reducing credit card debt and removing inaccuracies from credit reports can boost your credit score and reduce DTI ratios. With an improved financial position, you may be able to refinance to a lower auto loan rate – regardless of any change in industry rates.
A better deal is now available
There is another reason to refinance that can often be overlooked and doesn’t rely on market fluctuations or financial position. It is simply the opportunity for a better deal. Not all borrowers get the lowest available interest rate at the time they purchase a vehicle. If you are in a hurry to purchase a car, you may not be able to explore all the rate options. However, an auto refinance can give you the opportunity to shop around — to see if a better deal is available!