When you borrow money to buy a car, your car loan is not life imprisonment. You can potentially save money with a better loan, so it’s always worth assessing whether refinancing makes sense.
When can you refinance?
You don’t have to wait any minimum time before refinancing your car loan. You just have to meet all the requirements for a new loan to refinance. You can refinance immediately after purchase – even before making your first monthly payment. Just make sure you get a better deal, and refinancing will not cause you to pay more for your vehicle.
In some cases, you may not be able to refinance until you receive documentation from the motor vehicle department. Obtaining registration data can slightly slow down the process.
What do you need to refinance?
To refinance an existing loan you need:
New loan with better terms or price than existing loan.
Documentation of repayment capacity, e.g. payslips or tax returns
The best reason for refinancing: pay less interest
If you can borrow at a lower interest rate, refinancing may make sense. This lower rate (assuming all other things are equal) means that you pay less for the car after you take all your costs for the cost of the loan. Since the interest rate is also part of calculating the monthly payments, the payment required should also decrease. As a result, your monthly cash flow becomes easier to manage.
When you can replace an existing loan at a lower rate, it’s best to refinance as soon as possible. Most car loans depreciate loans, which means that you pay a fixed monthly fee along with interest built into the payment.
Over time, you pay off debt, but most of your interest costs are paid at the beginning of the loan, so lower that rate faster to start lowering overheads. First of all, you need to find out exactly how much you can save by refinancing.
Lower monthly payments?
Refinancing can lead to lower monthly payments, but this is not always beneficial. If you get lower payments as a result of a lower interest rate, you can save money, but if you wait a few years before refinancing, you’ll resume the interest cycle – which is not profitable.