If you need a new car before your credit or savings are quite ready, you may pay a higher interest rate. However, you can refinance your car loan once you build up a steady payment history and reduce that rate. Timing your refi will take care.
Give It At Least 60 Days
To gain any benefit, you’ll need to wait 60 days to refinance the car. Ideally, you will want to build up a payment history for up to a year before getting pre-approved for a new car loan.
The pre-approval step is critical. A regular car loan application could be a hard pull, and hard pulls can negatively impact your credit. Before you even start your pre-approval process, check the Blue Book value of your car in the NADA guide to make sure getting your car refinanced will be possible.
First-Time Car Buyers
For those buying their first car in their name, be prepared to make those payments for at least a full year. If the car had more than 100,000 miles on it when you bought it, you might not be able to qualify for a refinance. However, there are still ways to lower the cost of ownership.
If you’re not sure that a refinance of the vehicle will work, you can still save some cash by shopping around for car insurance.
Check In With Your Bank
Many car shoppers go ahead and finance their vehicle with the dealership. This method is fast and convenient, but it can be expensive due to fees and higher interest than you absolutely have to pay.
Once you’ve paid for six months to a year, shop the remaining balance with your bank. Look around for promo rates at other local banks. If you need to set up a new direct deposit account with a new bank to cover the car payment, it may well be worth the fuss to get a much lower payment. If you’re currently working with a bank and are interested in switching to a credit union, you may be able to get help improving your credit while enjoying a lower payment.
If Payments Are Unmanageable
Financial situations can change rapidly. If you’ve been making regular payments for a year but now find your car payment is unmanageable, a refinance can lower your payments by extending the terms.
For example, you may be able to find a 72-month term. If you initially bought your vehicle with a four or 5-year note, that 72-month loan may eventually cost you more in interest but could save your credit if it protects your budget.
According to experts at Lantern by SoFi, it is critical that you get pre-approved before you start applying for hard-pull credit checks. Be prepared for higher interest if you purchase a used car; even with good credit, the average auto loan interest rate is 2 to 3 percentage points higher for a used car.
If your financial situation goes south quickly, do your best to stay caught up on your car payments. Lenders may be able to weigh your car payment history more heavily than your other payment history, which can help to lower payments after you refi.