Refinancing your car loan can be extremely helpful in certain situations. If you need to start saving more money, free up cash for a large emergency expense, or deal with a sudden drop in income – lowering your monthly auto loan payment can help you tap into the extra funds you need.
Plus, if your credit score has improved since you first took out your car loan, you may be eligible for a lower interest rate. But, even if you cannot lower your interest rate, you may be able to still free up money by reducing your monthly payment.
Interest Rates Have Dropped
Interest rates change regularly, so there is a good chance that the rates may have lowered since you first financed your car loan. A drop of 1-2 percentage points could result in a lower monthly payment and less interest paid over the life of your loan.
Your Financial Situation Has Changed
Lenders use several different factors when determining whether a person is the right candidate for a loan. A financial institution’s two most common considerations when approving a loan are credit score and debt-to-income ratio (DTI).
If you have improved your credit score and decreased your DTI ratio, you could qualify for a lower rate, and you should think about refinancing your car loan.
You Need Extra Cash
Maybe you need to find a way to reduce your expenses, so you have some extra cash. Even if you aren’t able to lower your interest rate, you may be able to refinance your car loan over a more extended period. While you’ll pay more interest overall, a lower monthly payment will give you the cash needed.
If your original loan amount was $25,000 with an interest rate of 7% and a term of 60 months, you would end up paying $495.03 per month. After making payments for one year, your new balance would be $20,672.55.
Refinancing the $20,672.55 balance at a lower interest rate of 5% and choosing the same 60-month term, your new payment would be $390.12 a month, putting $104.91 back into your monthly budget.
While refinancing your car loan can sometimes save you money, you should consider whether your circumstances are right. If it sounds like music to your ears, get started with a refinance at FFCCU today, and you could also get 1% cash back* But hurry, the cash back opportunity ends March 19!. Click here, or Contact a teammate today to get started!