So if you're wondering when you should refinance a car after you've bought it then i am going to answer that question in this article because there are definitely some reasons why you should refinance a car and there's some reasons why you shouldn't 2022.
When Should I Refinance My Car After Purchase?
now specifically if you're asking when can i refinance a car technically you can do that tomorrow if you want to, because there are no set rules so if anybody told you that you have to wait six months or anything like that that is just not true unless it's actually stated in your contract and i've never seen that happen before.
so if you want to refinance you can do it tomorrow or next week but it's not necessarily the right decision and that's why we're going over when should you refinance your car.
Refinance to a better rate
now the first reason you should refinance your car is very important because if you've got an interest rate that's a lot higher than what you can get at a competing lender then you definitely should refinance your car as soon as you can. because you're going to be saving a lot of money and interest. now the way that you can tell what current rates are is just by doing some basic research.
all you have to do is hop online just check out your local credit unions and see what their best auto loan rates are and assuming that you've got good credit and your income is in a good situation. then you probably can compete for those different rates. because if you go out and get a car loan.
let's say that the loan is twenty five thousand dollars but you get a pretty high interest rate of seven percent and then you finance it over sixty months. well during the life of that loan you're actually gonna pay about forty seven hundred dollars in interest which is a ton of money for just a twenty five thousand dollar car.
but if you refinanced and let's say the best rate you could get on that specific car was a four percent rate well even at four percent with the exact same terms you're gonna save over twenty one hundred dollars in interest just because of the different interest rate.
so it is definitely a good idea to refinance to a better rate if you can. so if you bought your car from a dealer and you feel like your interest rate is just a little bit too high compared to what you can get somewhere else. then definitely try to get a new rate with a refinance because you are going to save a lot of money.
if you sign for your car and you don't actually know what your interest rate is then definitely look up your contract and find out what that specific number is as an interest rate because if it is too high compared to what you can get elsewhere then you definitely should be refinancing.
now if your credit is not in the best position when you want to refinance then maybe it's a good idea to just wait a few months and build up some payment history so that hopefully your credit score goes up.
but obviously you've got to be making all your payments on time not just your car payment so try to do the best you can with your credit bump it up and then try to refinance but you really shouldn't have to wait too long to do this i'm talking just a few months.
because even if your credit isn't perfect when you refinance as long as you're getting a better rate than what you started at then you're on the right track to saving some money when it comes to refinancing a car.
it typically doesn't cost anything to refinance your car so technically you could just keep refinancing every time you want to get a lower payment or a better rate.
but you really don't want to do that because you can easily end up upside down in your car what you want to do is try to keep the length of the new loan close to what you currently have left on your loan.
so for instance if you have 59 months left on your current loan for the car then try to get a 60 month contract on the next refinance that way you're close and you don't end up upside down meaning you owe more than the car is actually worth.
Take co-signer off loan
the next reason you might want to refinance your loan is if you originally had a cosigner on your loan. because going forward it can actually affect their credit if you make any late payments or anything like that so really the best thing to do is get them off the loan.
the easiest way to do that is just to refinance unless there's something in your contract where you can get the cosigner off but a lot of the time you have to get a new loan.
but just remember if you needed that cosigner to get the rate that you currently have and your credit's not much better then you're probably going to need a cosigner going forward if you're going to need a better rate.
so in that case it's probably better to just wait until your credit gets a little bit better and then you can get rid of the cosigner for sure with a better rate.
Cash-Out Refinance
now the next reason you might want to refinance your car and it's not really recommended unless you're in a serious emergency because i don't want you just wasting money here and going upside down.
but you can actually do what's called a cash out refinance meaning you can actually take some of the equity that you have in the car when you refinance and you can take that out as cash and use it for whatever you want.
so obviously if you're in a serious emergency then maybe that cash is needed but if you're just gonna go blow it on something it's probably not the best thing to do with your car.
because cars are always depreciating. so let's say that your car is worth twenty thousand dollars but you only owe ten thousand dollars on it well with the cash out refinance because you can take some of the value out of your car.
let's say that you up the new loan to fifteen thousand dollars you pay off the old loan at ten thousand and now you've got five thousand dollars extra money that you could use for whatever.
so if you have credit card debt or anything like that then it might be a good idea to pay that off because you're getting a better rate on the auto loan because if you did get a three percent rate that's probably a lot better than what you're paying on your credit card but you've still got to consider that you're getting a new loan of that new 15 000 and you've still got to pay that back.
so either you have a higher monthly payment or you just make the length longer on your car loan and that's really going to be a problem because eventually you will end up upside down.
because like i said cars are always depreciating. so just keep that in mind you really only want to do this in an emergency or if you're going to take care of some really high interest debt and you're not going to continue to get into that debt and get out of the problem for the long term.
i want to make a quick point here that a lot of people don't want to refinance because they're afraid that it's going to hurt their credit score and honestly that's the craziest thing i've ever heard.
because if you are going to get a better rate and you're going to save money you are going to have to have your credit score checked in order to get the loan because that is just a part of life.
whenever you get a mortgage a car loan a personal loan anything like that you are going to have to have a hard pull which means that your credit score is going to go down just a tiny bit but eventually it will go back to normal and as long as you're just doing this a few times every couple years it's really not going to be a problem for your credit score.
honestly it could even be better for your credit score to get a new loan because now you've established a new line of credit credit history and your payment history assuming that you're making the payments on time and doing what you're supposed to.
because all of that is actually going to help your credit score so that new loan could actually be a good thing.
now if you're wondering where you should go to refinance your car i'm always going to recommend to just check with your local credit unions because they typically have very competitive rates.
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