Refinancing debt can be a great way to free up cash or lower the total interest you’ll pay over the life of the loan. Depending on your current credit rating and the age of your car, refinancing your vehicle loan could be a good decision. If you bought your car when your credit rating was low or non-existent, you might be able to lower the amount of interest you’ll pay over the life of the loan.
Consider Your Payment
If you’ve been making your payments for at least a year and have been working to raise your credit rating, you could be a great candidate for a vehicle refinance. In addition to enjoying a lower payment because you’re paying less interest, you can extend the term of the loan and free up even more cash.
Go ahead and run your loan through a soft pull calculator to start. If you have a savings target or a debt that you’ve been working to completely pay off, set up a personal spreadsheet that you can use to calculate how much these savings will help you get to your goal. A refinance is most beneficial when you have a path for those dollars to go to work to help you meet your goals.
Check the Timeline
If you can refinance for a shorter term but drop the interest rate, consider making the same payments so you can pay the car off sooner.
Do be aware that refinancing to lower the payment may well increase the interest you pay over the course of the loan. Of course, if you’re struggling with 20% credit card interest, your vehicle loan interest is not your top priority.
Consider Prepayment Penalties
Before you put in your completed application, make sure that your new vehicle loan has no prepayment penalties. If your credit rating was very rocky when you bought your car, the total debt might have included precomputed interest. Unless you just can’t meet the current payments, such a loan may not be worth refinancing.
Poor credit is costly. Any savings from your vehicle refinance should be routed to boost your savings or lower your debt. If you discover that a vehicle refinance will not be worth your effort, carefully review your other debts to look for ways to lower your interest burden.
Use Soft Pulls
According to Lantern by SoFi, “To check the rates and terms you may qualify for, Lantern and/or its network lenders conducts a soft credit pull that will not affect your credit score.” The final loan approval to refinance car loan may come up with a different payment result than soft pulls. Check the calculating tools offered by your sticks and bricks bank as well as online lenders to get the best deal for your vehicle.
A hard pull will hit your credit report. If you run a soft pull and realize that your lower payment will allow you to refinance other debt, secure the car loan first! You don’t want to take those soft pull numbers and make permanent decisions; you may find that the new debt you take on will ruin your chances of qualifying for a vehicle refinance.