You’ve heard about refinancing. Maybe it’s been suggested to you by your family or local bank guy. You can refinance car loans, mortgages and other loans to improve your financial horizons. But the idea can be intimidating for most of us – all that paperwork, research and the dreaded one-on-ones talking about money.
What is Refinancing?
Simply put, refinancing a loan is a refiguring of terms for a loan that you’ve already got. In essence, you replace one loan with a new one that has terms you can better meet. Maybe your interest rate is higher than it should be, maybe you’re struggling financially and need lower payments, or maybe you want to consolidate your debt. These, and other reasons, are what refinancing is for. An auto refinance might be the thing to rescue your budget this year.
How to Know When it’s Time to Refinance
There are several times when refinancing your car loan makes sense. These could include everything from your financial life worsening, finally making more money, or anything in between. Here are a few specific reasons, and why these are great times to refinance.
1. You’re Finally Making More Money
Maybe you’ve been living paycheck to paycheck for a long time, or maybe you’ve been paying off debt. Either way, your finances have been tighter than you’ve liked. But now, you’ve gotten a raise, a better paying job, or even a second income stream. Now that you’re finally making more money, refinancing your car loan is a great idea. You can pay it off sooner now, and improve your credit score as you do so.
2. You’re Not Making as Much Money
On the other hand, our economy isn’t doing that well, and a lot of us are taking financial hits. If this has happened to you, refinancing now could be the right move to make life easier. Refinancing can help you lower your monthly car payments. You will take longer to pay it off, but if you’re more secure now in the time of struggles, you’ll be better able to pay ahead in the future when your finances get straightened out.
3. You Didn’t Start Out with the Best Interest Rate
Whether your finances are stable or unstable, having a high interest rate can mess up your financial future. Paying too much is never good, so, no matter where you’re at, you may want to consider refinancing now. Getting a better rate can drastically improve your financial well-being and future.
4. Interest Rates Have Dropped
If you pay attention to interest rates at financial institutions, you may discover that interest rates have dropped. If you’re paying higher than the ones they offer, you should jump on it and refinance now. Why would you pay more money for the same thing if you don’t have to? Keep an eye on rates at banks like Wells Fargo, Bank of America, your local credit unions and others to be able to take advantage of the drop when it occurs.
5. Your Credit Score has Improved
Of course, if your credit score is better, you’re going to get a better rate. A better rate is always more affordable. Take advantage of the improvement, get refinanced, and improve your score even more. As you pay off bills on time, pay off loans and improve your financial habits overall, your score improves, and makes for better financing options in the future.
Will Refinancing Effect Your Credit Score?
According to Credit Karma, you’ll notice hard inquiries on your credit score if you apply for to refinance your car loan. But there are tactics you can take to decrease the number of hits on your score. Doing all of your applications in a short period of time, for example, can help with this. But even if it doesn’t, it’s only a couple of points, and the effects will diminish with time as you track your score, pay your bills on time and deal with your finances accordingly.
Where Can You Refinance Car Loans?
There are literally thousands of banks and financial institutions where you may refinance a car loan.
You’ve probably seen commercials for some of them. Capital One Auto, for instance, has ads online, on the television and other places. You can seek a Bank of America auto loan, Wells Fargo auto loan, or just visit the local branch of your own bank or credit union to get started. They have departments that specialize in auto refinance needs.
Take a look at your credit score, your finances, your current loan rates and lease date. Refinancing might be the very thing that will take your car payments from burdensome to doable. If refinancing can do that, it’s worth the paperwork and bank office visits to find out.