Picture this. You bought a new car just a few years ago, when interest rates were at their highest and your credit score wasn’t quite where you wanted it to be. As a result, you took on a large payment at a high interest rate. But things have changed. You’ve worked hard to improve your credit score. In fact, you’ve improved it by over 50 points! Not only that, but interest rates are finally coming down again. So, what do you do?
Refinancing an auto loan typically offers a host of benefits. The opportunity to lower your monthly payment and reduce the amount of interest you pay over the life of your loan is lucrative. But when is the right time to refinance your auto loan? The answer is: possibly right now.
What is Auto Loan Refinancing?
Auto loan refinancing is all about replacing your current loan with a new one that has updated terms. When you refinance an auto loan, you may be able to lower your interest rate or extend the loan term to reduce your monthly payments. This option is often pursued when your financial situation has improved or when market conditions offer lower rates.
By doing so, you could save money on interest over time and that can help you manage your budget. Keep in mind, refinancing is typically a simple process that can potentially lead to significant financial benefits.
How Soon Can You Refinance an Auto Loan?
This all begs the question—how quickly can you refinance an auto loan after you take out your initial loan? In most cases, refinancing lenders will want you to wait for somewhere between 30 and 90 days. And since you don’t always make that first loan payment right away, you may need this much time to get into the process of managing that new loan and showing good repayment behaviors.
Plus, you will need to allow enough time for the car title to be transferred. It’s rare and highly unlikely that you’ll walk away with the car’s title in your name the day you buy your car. And, the title is a necessary item for your loan refinance.
Here are a couple of other things that will play into the timing of your auto loan refinance.
- Lender Requirements: Lender policies can vary widely—some lenders may allow you to refinance immediately, while others might require you to make several months of on-time payments, typically six months, before considering a refinance.
- Loan-to-Value (LTV) Ratio and Vehicle Depreciation: As your vehicle depreciates, the LTV ratio becomes a key factor in refinancing eligibility. If your loan balance is higher than the vehicle's value, it may be harder to get approved or secure favorable terms.
Factors Impacting When You Can Refinance a Car Loan
Remember that scenario we shared at the beginning of the article? In that scenario, your credit score had improved by over 50 point, and interest rates had started to drop. Those are both pretty key factors in deciding the right timing to refinance your loan.
But there’s more to it than just those factors. In fact, we’d suggest you need to pay attention to each of the following to determine the right timing for you.
- Interest Rate Trends: Refinancing can be a good option when interest rates are lower than when you took out your original loan. Comparing the new interest rate to the original one will help you determine if the savings are worth refinancing.
- Credit Score Improvement: If your credit score has improved significantly since your initial loan, you might qualify for lower interest rates, leading to reduced monthly payments and long-term savings.
- Loan Age and Remaining Term: Refinancing might not be as beneficial for older loans with shorter remaining terms since the majority of interest has already been paid, and the potential savings could be minimal.
- Prepayment Penalties or Fees: Before refinancing, check if your current loan has any penalties or fees for paying off the loan early, as these costs could impact the overall savings from refinancing.
Ready to Refinance Your Auto Loan?
If you’ve decided that it is time to refinance your auto loan, RateWorks is here to help. You can stop searching online for refinance auto loan, because you have absolutely come to the right place. We make the loan process easy with competitive rates and a simple loan agreement that is easy to understand.
Ready to get started? Get a free quote today and see how much you can save with RateWorks.