Rules of Thumb on When to Refinance a Car Loan
- Wait at least 60-90 days from getting your original loan to refinance.
- Consider refinancing after six months.
- If you are a first-time car loan borrower, wait at least a year to refinance your loan.
Is it a bad idea to refinance your car?
Refinancing a car loan involves taking on a new loan to pay off the balance of your existing car loan. People generally refinance their auto loans to save money, as refinancing could score you a lower interest rate. As a result, it could decrease your monthly payments and free up cash for other financial obligations.
What are the pros and cons of refinancing your car?
Pros of refinancing a car loan
- Lower interest rates. Most people are drawn to the appeal of lower rates which reduce interest expenses and the total cost of the loan.
- Reduce payments and extend your loan.
- Improved cash flow.
- A more accessible lender.
- Higher interest rates.
- Larger interest costs.
- Refinancing fees.
Is it worth it to refinance?
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.