When to Refinance Your Car | Auto Finance

By JasonLancaster
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If you are considering refinancing your car, you should only do so for the following three reasons:

1) The first reason you should refinance your car is if you can get an interest rate that is at least 1% better than what you currently have. Although 5.99% is better than 6.25%, they are so close (less than 1%) that the difference is not enough for you to waste your time. However, if you are able to get an interest rate that is at least 1% better, you should seriously consider refinancing. If refinancing will get you an interest rate that it 3-4% better, you should definitely refinance your car loan.

2) Not being able to make payments on your car loan is another reason you should refinance. If you can't afford the payments and may default on your loan, definitely refinance. If there is a possibility that your car will be repossessed in the next couple months, refinance as soon as you can if this will prevent repossession.

3) If you're at risk of defaulting on your home loan because you can't afford to make mortgage payments unless you can lower your car payments.

Do NOT refinance your car in order to get money to pay other bills. You will not be able to get any money from the equity in your car because cars do not have any equity. A car is a depreciating asset, which means that it is worth less tomorrow than it is today.

Although some banks may offer "car equity loans," don't fall for it. Your car may be worth more than what you owe, but this never lasts very long. It would be a mistake to borrow against this equity. You will add more payments to your current auto loan. Consider the future. Making an additional two years worth of payments on your car could not be worth the $100 you would get today from this kind of loan.

Unless you're at risk of defaulting on a major asset, don't refinance. If you refinance for extra cash, you'll regret it in two or three years when your car should have been paid off and you're still making payments.

If you decide that you should refinance, follow this advice:

Don't pay any fees unless they're minor (such as the $20 your bank may charge for a new title or lien). Walk away from "refinancing fees" and "loan origination fees," and other charges along that line. The bank should be happy for your business and shouldn't charge you for it.

Never add more time to your car loan unless you are desperate to have your payments lowered. You shouldn't refinance using another five-year loan if you originally financed your car using a five-year loan two or three years ago. In a case like this, the only thing refinancing has done is increased the amount of time you will have to pay on your car. If possible, refinance using a loan that will end when your original loan would have ended.

Check with your credit union. Credit unions have great rates, they want to help you, and they're willing to work with you more than a regular bank will, especially if you're in a situation where you're at risk of defaulting.

About the Author

Author Jason Lancaster, a car industry veteran, developed AccurateAutoAdvice.com. You'll find accurate advice on refinancing an auto loan and when to refinance your car.

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