Most people who buy cars need an auto loan. After all, parting with a sizable income all at once is only feasible for folks with large incomes. Different factors can impact how much money you need to borrow, like if you traded in your last vehicle. Another factor can be your down payment, as a bigger one will result in a lower loan overall.
When borrowing money, you also should consider how long you have to pay back the loan and the interest rate. To determine how much extra you will pay per month, you need to know the APR or annual percentage rate. While lower payment amounts are ideal, they can cost more over time because of interest. Higher payments often result in getting rid of the loan quicker.
While there are many factors to consider, auto refinancing can lower the loan’s APR or your payments. Let’s discover some dos and don'ts of auto refinancing to know about. This can help you decide what’s right for you.
Do: Check Your Credit Score
Your credit score may have changed depending on when you first got your auto loan. You should consider refinancing if the number has improved. As a general rule, low interest rates coincide with high credit scores.
Don’t: Refinance Too Soon
Most financial institutions recommend you wait six months before you consider refinancing your car loan, but waiting a full year can prove beneficial if you're able to manage it. Taking a little more time helps establish how you can make these payments on time.
Do: Find the Best Interest Rate
Try your best to resist the temptation to jump on the first refinancing option you see. Finding the best interest rate can take some hunting, so research different lenders.
Don’t: Prolong Your Loan Term
Having more time to pay something off is tempting, especially when the payments are lower. However, long loan terms also result in paying more interest. This means you’re not getting an amazing deal, so be cautious of longer loan terms when refinancing.
We hope the dos and don’ts of auto refinancing have helped you learn what to know about the process. Democracy Federal Credit Union has the power to lower your APR by 50 percent. We have six branches in DC, VA, and MD. Refinance with us by applying on our website today.