The Do’s and Don’ts of Auto Loan Refinancing
Looking to refinance your auto loan? Abbotsford Auto Loans can help you decide if refinancing is a good option for you. We look at your credit score, income and work history to determine whether you qualify for a new loan with improved financing terms. The professionals at Abbotsford Auto Loans ensure you get the best interest rate while also delivering the lowest monthly payments, saving you the most money in the long run.
Lowering your interest rate saves money every month on your payments. If you are able to pay more on monthly payments but want to shorten the loan period, consider keeping the interest rate the same but paying more per month.
The other option you have when it comes to refinancing is to extend the length of the loan. Although you will pay lower monthly payments, you may end up paying more in the long run due to the additional interest accrued over time. This is an ideal option for someone that has a change in income and can no longer afford to pay the minimum monthly payments originally agreed upon. Only consider this option as a last resort in refinancing.
So how do you decide if refinancing is right for you? There are two reasons to consider refinancing:
- - Your credit score changes
- - You find a better interest rate
- Before making changes to your car loan, consider these common dos and don'ts of auto refinancing.
The Do’s of Auto Loan Refinancing
Research your current credit score using a free credit report
Often, there are errors on your credit report that can be quickly and easily fixed. Once you take the time to rectify these issues, your credit score could rise, giving you better leverage for refinancing your auto loan.
Spend an average of 30-50 days working to improve your credit score before discussing refinancing
If you received your auto loan during a period where your credit score was suffering, you may have had to accept a higher interest rate. Improve that credit score by more than 50 points and you may qualify for a better interest rate.
Refinance if you’re struggling to make minimum monthly payments on your auto loan
While no one wants to extend the length of their loan and potentially pay more money, you need to think about the short-term needs. If you’re at risk for losing your car because of failure to make loan payments, refinancing to extend the loan may be the best option for you.
Pay off high credit card balances
Lowering your overall debt helps improve your credit credentials.
Get the best interest rates on auto loans with a healthy mix of debt
A good example of this is having a few active credit cards, monthly mortgage payments, and student loans. Not all debt is bad; in fact, the right mix of debt shows that you know how to balance your money. By keeping these accounts up to date on payments, you demonstrate financial responsibility in managing your credit history.
The Dont’s of Auto Loan Refinancing
Don’t open new lines of credit
When planning to refinance, you should not open new lines of credit. Each time you open a new credit account, your credit score drops slightly. With up-to-date payments over time, your score bounces back and even improves, but your score goes down at first, sabotaging your auto loan refinancing goals.
Don’t extend the length of your loan by refinancing if your overall goal is saving money
While extending a loan lowers monthly payments, it adds interest over time, which actually increases the total price of the car.
Don’t cave to pressure from debt collectors
Debt collectors frequently use intimidation to get you to agree to unfair refinancing terms. They do not have your best interest in mind and are only looking to repay as much of the debt as possible. Make sure to discuss all of your options with a refinancing expert.
Don’t refinance towards the end of your loan term
Older vehicles decrease in value over time, making your car less likely to get refinanced. In addition, you pay most of the interest on your loan when you first purchase the car, making it a better choice to lower interest rates at the beginning of the auto loan.
Don’t turn to companies that claim they can fix your credit history
These companies may be able to help you lower your debts, but they are not able to make a history of late payments disappear from your record. That only happens over time and with improved credit payments.
Although refinancing can help you lower your monthly payments or interest rates, be careful to consider all your options before agreeing to a refinancing payment plan. In some cases, refinancing is either impossible or could actually harm your auto loan. Typically, you should not consider refinancing your loan if the car is more than a few years old, it has over 100,000 miles, or the loan amount exceeds the total value of the car. Speak to the auto refinancing experts at Abbotsford Auto Loans to see if renegotiating your car loans can save you money or make your payments more affordable.