If you’ve been thinking about refinancing your car, you’ll want to make sure you’re doing it for the right reasons. Unlike a home mortgage, a car loan generally has a loan term of just a few years — so you need to have a compelling reason to change up your loan. As you weigh your options, be sure to consider the following:
- Interest Rates
Locking in a substantially lower interest rate — whether due to market changes, or to an improvement in your credit score — is probably the best reason to refinance a vehicle. Doing so can change the total amount you pay for it in the end.
But of course, the interest rate isn’t the only thing that matters. If the new loan has a lower interest rate, but a much longer payment term, it may not be worth it because the total paid over the length of the loan may be nearly the same, or even more.
- Prepayment Penalties
If your current loan carries prepayment penalties, you may get hit with these when paying the loan off from your new lender. If so, remember to build that amount into the total cost of the new loan to see if you still come out ahead in the long run. Additionally, you may want to try to get a new loan without such a penalty — just in case you end up with a later opportunity to pay your vehicle off more quickly.
- Lower Monthly Payments
Has your income taken a hit recently? If so, getting a lower monthly payment may be beneficial in helping you manage expenses.
Of course, to reduce your monthly payment, you may also need to extend your new loan over a longer period of time — which could result in a higher total cost by the time you’re done paying. So you’ll need to prioritize whether the short-term advantages are more important to you during this time.
Want to learn more? Consider an auto loan through Horizon Bank. Reach out today for details and Sensible Advice about whether vehicle refinancing could be right for you and your current circumstances.