It is no doubt that last year, the pandemic gave us a hard time purchasing a new car. Due to the unfortunate circumstances and chip shortage, the new car supply has dropped significantly. Therefore, the demand for vehicles has skyrocketed, just like the prices. However, people continued their car shopping without being affected. Studies show that in the U.S, nearly 25 million people purchased a vehicle in 2021, based on an auto loan.
You may have no idea when it is the perfect moment to refinance a car. So for this purpose, take a look at when (and when not) to refinance your auto loan.
There is good news for all the auto loan borrowers! If you have a bad credit auto loan, then refinancing your car loan is the ideal option for you. On the other hand, if you find your monthly payments too high, want a better loan offer, or want a lower interest rate, you should refinance your auto loan right away!
Refinance your car when you see these three signs
When you see these three key signs, rush to refinance your auto loan and enjoy a tranquil, debt-free life in 2022:
1. Interest rates are lower:
The federal interest rate has dropped nowadays due to some historical reasons. So don’t miss this golden opportunity and get started with your auto loan refinancing right away. These rates won’t last forever and change rapidly, so don’t waste any time!
2. There is an improvement in your credit score:
Another sign that indicates you should refinance your auto loan is your improved credit score. Most lenders decide your loan offer, aka the interest rate, after analyzing your credit score. That is why if you have a credit score, you get a lower interest rate loan. Your credit score shows improvement when making your monthly car payments on time.
3. You have a thick credit file:
Don’t confuse this with your credit score, as both might seem similar. You can define your credit file as a long-term record of repaying debt from several loans. If you are currently paying your first car loan, your credit file would be “thin” because the lender doesn’t have enough data to assess your credibility.
If you are refinancing your auto loan for the first time, wait for at least 12 to 18 months and let your payment history establish. However, if you are not a first-timer, you can apply for car refinancing after six months of taking out the original loan.
Is refinancing a car the right choice for you?
Not everyone fits for car loan refinancing. You can’t refinance if you recently took out a car loan. Your credit score is responsible for determining what interest rate you would qualify for. If your credit score has dropped since you last took the initial loan, you will get an even worse loan offer with a higher interest rate. In this case, you should hold off refinancing and improve your credit score. Your car insurance premium may also get affected because of refinancing. Consider consulting your insurance provider for a more in-depth analysis on when (and when not) to auto refinance.
Here’s how you can get started with auto refinancing
To initiate refinancing, you have to set a goal. For what purpose are you refinancing? Do you wish to have a low monthly payment? Do you want to increase or decrease your loan term? Do you want to save money over the lifetime of your loan?
Depending on your refinancing goal, you can find a new lender and make changes to your loan. For refinancing purposes, you need the following documents:
- Your credit report
- You ID
- Vehicle’s details/documents