Refinancing auto loans is popular these days, and you will probably know a friend or colleague who has done it recently. It cuts down your monthly payments on your car loan, and you may end up saving a significant amount on interest. But you will want to know whether it is the right time to leap. The decision seems daunting for a first-timer, and there is more than timing to consider. Before you go ahead, you must be sure that the decision works in your favor, and you can grab the opportunity right away. Here are some things to consider.
Go ahead if getting a good deal
It is best to refinance your auto loan if you feel an alternative deal has a better interest rate and terms on offer. But it is vital to check your credit first because a low score can stand in the way of viable deals. Moreover, you must not shop for refinancing just a few months after your first loan. The hard inquiries generated during the process often lower the credit score. Ideally, you must wait a few months for your score to recover. At the same time, consider the amount outstanding compared to the current value of your vehicle. Lenders are likely to extend loans if your car is worth at least as much as the loan value.
Consider your payment history
Your credit score isn’t the only factor that decides your refinancing options if you want to refinance for a vehicle bought more than a year ago. You will have to back it up with viable payment history. It makes sense to get auto refinance rate estimates only if you are sure about having a good history. After all, lenders are more willing to provide finance on terms and rates if they see you as a responsible borrower. Make sure you stay ahead of your payments and make them on time and every time. Once you have a good background picture to show, any time is good to refinance.
Follow the timing rules
While there aren’t any rules of thumb about the right timing for auto refinance, you can follow some unspoken advice by experts. You must wait at least three months from the date of the original loan before refinancing. Transferring the title on your vehicle takes at least this long, so you can start the second time only when it is done. You can consider refinancing after six months if your credit score is fairly good. First-time car loan borrowers should wait at least a year before exploring refinance options. It will help you build a good loan payment history before applying again.
While auto refinance can make life easier financially, you cannot jump too quickly at the first chance. It is vital to consider different factors before going ahead, from timing to your current credit score and the value of your vehicle. These factors enable you to secure optimal interest savings, which is the very reason for refinancing in the first place.