7 Signs You Should Refinance Your Car

Your monthly car payment can be a big part of your budget, but there are ways to reduce the cost and get a better deal on your auto loan with a refinance.

While refinancing may be a good option to help you manage your money with a better deal or lower interest rate, there are still some things you should take into consideration before you sign on the dotted line, like hidden expenses or the time it may take to process your loan.

Keep reading to see if you’ve noticed any of these common signs that it may be time to consider refinancing your auto loan.

1. Rates have dropped

The Federal Reserve recently dropped interest in the third quarter of 2024. Lower interest rates can translate into a lower monthly payment, especially for anyone who took out an auto loan in 2022 or later.

2. There’s a better deal out there

Some car shoppers are in a rush to get behind the wheel, which means sometimes taking a loan with less favorable terms simply because you have to.

Now that you have your car and can choose to take your time, you may be able to shop around and find a better deal than the one you currently have.

3. Your situation has changed

Things can change during the life of your car loan, and that includes your own financial situation.

You may have changed jobs, resulting in a higher income, paid down existing debts, or made other money moves that have boosted your credit rating.

These changes can have an impact on your ability to get a better deal on a loan so talk to a bank or financial institution to see if your better financial outlook translates into a better deal.

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4. Your adjustable-rate loan is about to expire

If you opted for an adjustable-rate loan when you signed your original car loan, you may now be able to refinance your loan to lock in a fixed rate instead.

Of course, you may want to do some research into this decision to see if refinancing out of an adjustable-rate loan will put you into a better position long-term first.

5. You want to reduce monthly payments

If you’re hoping to keep a little extra cash in your pocket at the end of each month, you may want to see if you can refinance into a lower monthly payment by extending the life of your loan.

However, those considering this option should carefully consider how much money this will cost in the long run. While reducing monthly costs can help you in the short-term, you may end up paying more for your car thanks to the additional months (or years) of interest.

6. You don’t have prepayment penalties

In order to refinance your loan, you’ll likely have to pay off the existing loan with your lender before starting the new terms on your refinanced loan.

But paying off the previous loan could mean paying a fee known as a prepayment penalty. Double-check the terms of your loan to verify whether you will owe money for paying off your loan early.

If not, you can move forward with an auto loan refinance without having to worry about the added costs associated with closing out your existing loan.

7. You want a new lender

If you're unhappy with the lender that holds your auto note, you may want to consider refinancing simply to get away from them.

Bad customer service, lost payments, or frustrating communication practices can all leave a bad taste in your mouth, making the idea of refinancing with a new lender sound appealing, especially if you can get more favorable terms elsewhere.

Bottom line

A car loan is a major financial investment. But, when it comes to having a car, it’s important to consider some of the other potential costs that can arise, like maintenance and fees.

To keep track of all of your car-related expenses, you may want to create an estimated budget for your car that includes costs like gas, maintenance, and possible repairs.

It’s also important to shop around for the best car insurance to help you keep some cash in your pocket.

Money tips that can work for everyone

No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.

Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.

Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.

Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).