Recent world events have many of us working hard to build up savings and get ahead on our current debts. You may have a goal to pay off your credit cards or to pay off personal loans. No matter your financial goals, refinancing your car can lower your financial stress.
Lower Your Payment
If your first loan was for five years and you’ve been paying for 18 to 36 months, you may be in a good position to refinance your loan for another five years to lower the payment. Be aware that your current mileage will have an impact on your chances of a refinance; use a refinance calculator to learn your chances before you allow a hard pull on your credit report.
According to Lantern by SoFi, if you’re struggling to meet your car payments, you may want to look into car loan refinancing to lower your monthly payment. Do be aware that by extending the term of the loan, you will pay more interest overall. However, if you can make biweekly payments, you may be able to lower that interest rate and pay off the car sooner.
Lower Your Interest Rate
If you had to buy a car when your credit was not in great shape, you might have to pay a higher interest rate.
During such a refinance, consider the double boost of both lowering your interest rate and extending the terms back to the original term of the loan, usually five or six years. Take care to use these funds for
- emergency savings
- paying down high-interest debt
- your search for a home
This is not free money; you will pay interest through the end of the loan, even if it’s lower. However, in case of a tight budget, dropping the interest rate can help.
Pay Down High-Interest Debt
A better interest rate should result in a lower payment. List out your total debts on a spreadsheet that allows you to sort by interest rate, the total owed and monthly payment.
Obviously, if you have fallen behind on payments, you will need to use the money saved to plug the holes in your budget. However, if you’re paying all your debts and building savings, run your car loan through a refinance calculator.
Get Rid of a Cosigner
If someone cosigned on your car loan to help you get a vehicle that would allow you to earn more, their credit is being limited by your debt. Refinancing in your name alone will take that burden off their credit rating and should be your first goal once your credit rating has come back up.
The sooner you can pay off your car, the sooner you will have extra cash to save, invest or put against other debts. As you get your financial head above water, other opportunities to lower the interest you’re paying will come available.
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