There are plenty of reasons to consider an auto refinance. Just a few good reasons include debt consolidation, an improved credit score, deteriorating personal finances and better interest rates.
1. Credit Consolidation
If you've already racked up some credit card debt and the high interest is eating you alive, refinancing your vehicle may be a temporary solution. You'll probably get a lower interest rate on your car loan than your credit cards because it's secured debt. While this can save you money in the long run, it only works if you stop accruing credit card debt and pay off your car loan. Consolidating your unsecured debt into your auto loan means that you risk losing your car if you don't pay it off.
2. Improved Credit Score
Any time your credit score improves, it's a good ides to look into an auto refinance. This could save you lots of money over the term of your loan. It can also lower your monthly payment and further improve your credit. The best reason for considering an auto refinance is because of improved credit. This can also be an opportunity to snowball your payments by reducing the interest and monthly premium while still paying the same amount. The monthly reduction in your principle can really add up.
3. Financial Hardship
If your personal finances are on the rocks, you might want to consider an auto loan refinance to ease the burden. Lots of people are dealing with fewer hours at work, infrequent salary increases and high gas prices. Even if you're lucky enough to not be one of the many people out of work, the economy has been rough. One way to ease that financial tension is with an auto refinance and a loan with a longer term. Rather than paying off your car in two years, it may be easier to make the payments over five years. Keep in mind that you'll be trading money for time. That is, you'll pay less each month, but you'll pay more over the course of the loan. This type of auto refinance is only a good option if your budget is already strained.
4. Lower Interest Rates
Lower interest rates on your savings account are a bad thing, but they signal lower rates on loans as well. When rates drop, you've got to get your auto loan refinanced. Cutting a point or two off your loan can save you big bucks over the term. Take this opportunity to put some money back in your pocket and save on interest over the next three to five years.