You could refinance your auto loan for one of many reasons. You might want to lower your auto loan payment or pay less interest over the life of your car loan. However, refinancing your auto loan may not always accomplish what you are trying to achieve. Here's what to consider when refinancing your auto loan.
What Is Your Goal?
Common goals for auto refinancing include taking equity out of your car, lowering your monthly payments or paying less interest on your car loan. Whatever your goal is, you need to make sure your auto refinance loan will accomplish that goal. Be very specific with you want out of your auto refinance before you start applying for loans so you can make sure you aren't tempted by a flashy offer that seems like a great deal but won't help you accomplish your specific goal.
What Can You Afford?
Knowing what you can afford in terms of a monthly payment is one of the most important things to consider when refinancing your auto loan. You should have a number in mind for your auto loan payment that can fit comfortably within your monthly budget. The perfect auto loan may result in a payment much less than your maximum comfortable payment, but you need to know your limit before you go loan shopping so you don't fall victim to an offer that isn't good for you.
If you find what you think is the perfect auto refinance loan and you can't afford the monthly payments, the loan isn't right for you. Missing just one payment could devastate your credit score or result in your car being repossessed.
Are You Saving Money or Paying More?
Regardless of your goal for refinancing your auto loan, you should know whether refinancing will end up costing you more or less money over the life of your refinanced auto loan. To figure this out, multiply the number of payments left on your current loan by your monthly payment to get the total remaining cost of your current auto loan. Then, multiply the number of payments on the new auto loan by the monthly payment on the new auto loan and add any fees required in order to obtain your new refinanced auto loan.
Compare the two numbers to figure out if you'll be saving money by refinancing or paying more money to refinance your auto loan. Even if refinancing your auto loan costs you more money, it may be worth it depending on what the goal you set for your auto refinance loan. For instance, cashing out the equity in your car will almost always result in paying more over the life of the new refinanced loan.
Now that you know what to consider when refinancing your auto loan you can get started finding your perfect loan. Make sure you shop around and compare multiple loans to find the best deal for what you're trying to accomplish. Once you find the best loan, refinance your auto loan so you can start working toward accomplishing your new goal.