When you buy a car, you're faced with multiple major decisions. You have to decide what car you want, how much you want to finance and the term of your loan. It's easy to get overwhelmed and make decisions you'll later wish you could have changed. Assuming you qualify, you can refinance to a shorter term auto loan if you wish. Here are a few reasons you may want to consider refinancing.
You Want to Buy a House
It's possible you never dreamed of purchasing a home when you financed your most recent car. Usually, buying a home while you have an auto loan isn't a problem. However, if you have a significant amount of debt, having a car payment may make it difficult to qualify for a home loan. If you have a large amount of debt, you could refinance to a shorter term auto loan so you can pay your loan off faster than your current loan requires. Doing so may allow you to obtain a lower interest rate and save some money that would have otherwise been paid toward interest. Once your car loan is paid off, you'll have more income available to be used toward the home loan you'll need to buy the home of your dreams.
Lower Your Total Interest Paid
Refinancing to a shorter term auto loan can lower the total amount of interest you'll pay on the remaining payments of your auto loan. In general, the shorter the auto loan term is, the lower the interest rate will be for loans from the same lender. Of course, there are other factors, such as your credit score, that will affect the auto loan rates for which you qualify. If your credit score has significantly increased since taking out your original longer term auto loan, refinancing to a shorter term auto loan could result in a much lower interest rate. To make sure you'll pay less interest and fees by refinancing your auto loan, compare the total of all remaining payments on your current auto loan to the total cost of all fees and payments on the refinance auto loan you are considering. If your old auto loan has a lower total, don't refinance. If the refinance auto loan you're considering is lower, refinancing should save you money.
You Hate Debt
Even if you hate debt, it's easy to get caught up in the joy of buying a new car and end up financing part of your purchase. Sadly, that may mean you took out a longer auto loan than you originally had planned in order to get the car of your dreams. Thankfully, you can correct your mistake by refinancing your auto loan to a shorter term loan. Doing so will allow you to pay off your debt sooner but may very well come at the cost of higher monthly payments. You'll have to decide if higher monthly payments are worth paying your car loan off faster. However, for those with a goal of freedom from debt as quickly as possible, refinancing could be a smart move.
Shop around for the Best Auto Loan
Make sure you shop around for the best auto refinance loan for your personal situation if you decide to refinance to a shorter term auto loan. Different lenders may offer different rates or have different fees that make one loan a much better financial deal than a competing loan.