Should You Refinance An Auto Loan?

Posted on: 3 November 2020

The average auto loan is between 65 to 69 months, which is a long time. People choose longer auto loan durations to make the payments more affordable, but paying on a car for almost six years might be longer than you desire. If you currently have an auto loan, you can refinance it if you would like. People refinance auto loans for several reasons, and you can, too. Here are some of the top reasons to refinance an auto loan. Understanding these might help you determine if you should pursue refinancing your auto loan.

To Shorten the Loan Duration

If you borrowed money to buy a car a few years ago and took a seven-year loan, you might have a long way to go before you pay off the car. If you do not want to spend another five or six years paying for this vehicle, you could refinance to get a shorter loan. Some lenders allow you to pay extra each month to shorten the duration, but it is often better to get a new auto loan instead. If you can shorten the loan to 36 or 48 months, you could cut several years off the loan duration. If you are interested in refinancing for this purpose, make sure you can afford the payments, as they will increase when you get a shorter car loan.

To Pay Less for the Car

The next reason people refinance auto loans is to save money on the vehicle. If your credit score has greatly improved since you initially got the auto loan, you may qualify for a lower rate now. If you can get a lower interest rate on a new auto loan, you will save a lot of money. Your payments might even drop due to the difference in the interest rate.  

To Lower the Payments

The other reason people refinance their auto loans is to lower their payments. Suppose you had a job change and now earn less money than you did before. If you are struggling to make your payments, you could refinance to a lower interest rate and longer duration to lower your auto loan payments.

Refinancing an auto loan involves the same steps as getting a new auto loan. You must contact a lender to begin the process. The lender can help you through the steps of the process. Getting a new auto loan can be a smart move, so call a lender to learn more.