When Should I Refinance My Car?

Each auto refinance deal is different, so the timing of when you should refinance your car loan depends on when it makes the most sense for you. Still, most people refinance their car loans when 1) their credit has improved, 2) they need to lower their monthly payments, 3) national interest rates have changed, or 4) they would like to remove (or add) someone as a co-signer on their loan.

Let’s look at each scenario.

YOUR CREDIT HAS IMPROVED

If your credit has improved since you bought your car, then a lender will probably agree to refinance your current loan to one with a lower interest rate.

Usually, to save money over the course of your loan, all you need is to lower your interest rate by one percent or so (learn more about how car loan interest works here). However, if your credit has truly improved, you may be able to lower your interest rate by much more.

Keep in mind that your credit is more than your credit score. Lenders usually look at an applicant’s entire credit report(s) when considering a loan application. To learn more about how lenders may review your credit history, read the Four C’s of Credit.

You have a legal right under the Fair Credit Reporting Act to view your credit reports from each of the three nationwide credit bureaus every 12 months for free. Visit annualcreditreport.com or call 1-877-322-8228 to request your free report(s). Please note, annualcreditreport.com is the only website authorized to give you your legally mandated free report. Other websites exist that offer free credit reports or free credit scores, but some (not necessarily all) may try to get you to pay for your credit information. Visit this page from the Federal Trade Commission for more information on accessing your free credit reports.

 

Is Auto Loan Refinancing Is Right For You?

Refinancing may help you…

  • Lower your interest rate
  • Decrease your monthly payment
  • Remove someone from your car loan

YOU NEED LOWER MONTHLY PAYMENTS

One of most common reasons that people to refinance is to lower their monthly payments. Auto refinancing can be a great way to cut back on monthly expenses, but you need to be careful that refinancing, for this reason, makes sense for you.

Because of how car loan interest works, you have two ways to lower your monthly payments with a new loan. You can get a lower interest rate, you can extend your loan term, or you can do both.

So, if you refinance to a lower interest rate and keep the same loan term length, you would lower your monthly payments.

Or if you simply extend your loan term and keep your old interest rate, you will also lower your monthly payments. However, generally speaking, the longer your car loan term length, the more interest charge you will pay in total over the course of your loan.

The reason longer term lengths may cost you more over the life of your loan is that you pay an interest charge each month on the loan balance you have yet to pay. The longer you take to pay down your car loan, the more you pay interest on the loan balance you still owe. Still, it is possible to extend your loan term, lower your monthly payment, and pay less in total for your car. If you lower your interest rate sufficiently, a longer loan term length may not result in you paying more for your car.

Finding the balance between how much you pay per month versus how much you pay cumulatively over the course of a loan can be tricky. The important thing is that you understand how interest rates and loan term lengths affect how much your car loan costs so that you can make an informed decision about your refinancing goals.

INTEREST RATES CHANGE

If interest rates fall across the economy, then you have a better chance of refinancing to a lower interest rate because lenders will generally lower their interest rates to compete.

However, it is not easy to accurately predict future interest rates. The Federal Reserve plays a role in setting interest rates but so do various economic forces, making interest rate prediction extremely difficult. The only sure thing is that interest rates will fluctuate. So, waiting for interest rates to fall may or may not be worth it.

Furthermore, just because falling interest rates can help borrowers does not mean that rising interest rates should discourage you from refinancing. If your credit has improved since you financed your car, refinancing may help you reduce your monthly payments and interest charges no matter what the prevailing interest rates are.

YOU WOULD LIKE TO REMOVE (OR ADD) SOMEONE AS A CO-SIGNER ON YOUR LOAN

Not everyone seeks to refinance solely for financial reasons. Sometimes, more personal reasons motivate people to refinance, such as the ending of a relationship.

If you have a co-signer on your current loan that you wish to remove for whatever reason, then refinancing is a solution. When you refinance, you essentially replace your old loan with a new one, meaning you can remove a co-signer from (and/or add someone to) your car loan.

SUMMARY

People refinance their cars for many reasons, and if you refinance, you will probably do so for a combination of reasons unique to you. Still, most people refinance to save money or to handle a personal matter. The important thing is that you understand how auto refinancing works so that you can decide if and when it is right for you.

Why Staying with Your Car Insurance Company Can Be a Good Thing

You’ve probably seen tips on other insurance blogs or heard advice through auto insurers directly about how important it is to shop around for quotes. While this is a strong practice to allow yourself access to the best rates for your car make, age, and driving history, it isn’t always the best idea. For some people, staying with the same auto insurer for an extended period of time has been the most cost-effective, practical solution for their circumstances.

What many people don’t think about when deciding to switch auto insurance companies is the quality of the services, not just the quantity of cash they’ll save. Just because a car insurance company is offering cheaper rates than your current insurance policy doesn’t mean it’s a better policy. Before you switch to a different insurance company that offers you a lower quote than the insurer you’re currently dealing with, make sure you weigh the options. Staying with your current car insurance company can be a positive decision.

 

Renewal Discounts

Many insurance companies offer discounts to customers that have been loyal to them for several years. Arbella offers an additional 1% loyalty credit for every year you renew with them. Ameriprise offers discounts to customers that have been loyal to them for three years. While some insurance companies offer discounts when you renew with them, most companies offer more substantial discounts on other fronts.

 

Bundling Discounts

A lot of insurance companies will give you a discount if you bundle your car insurance with your home or life insurance policies. Nationwide, Allstate, Liberty Mutual, State Farm, and other insurance companies offer discounts to people who purchase multiple insurance policies with them. If you have bundled policies and have earned a discount as a result, you may have to prepare yourself for higher rates if you decide to switch insurance companies or forego a policy.

 

Accident Forgiveness

Nationwide, Allstate, Travelers, and dozens of other insurance companies offer accident forgiveness to their clients. Accident forgiveness refers to a park in which customers do not have to pay extra rates after their first at-fault accidents. Most accident forgiveness discounts can only be redeemed after 5 or 6 years of loyalty to the insurer. If you’ve been with the same company for long enough to qualify for this perk (or are close to this threshold), staying with your auto insurance company could be beneficial.

 

Overall Loyalty

As a general benefit from staying with your auto insurance company, you’ll have a better relationship with your insurer. Building trust with an agent creates a positive working relationship. This trust may help you in the long run; if you ever need to file a claim after an accident, this process should be simpler and more successful if you are speaking with an agent you’re very familiar with. If your agent knows your driving habits and history well, he or she will be able to recommend the best coverage for you. Getting acquainted with your insurance company is a huge perk to staying loyal to your insurance company.


If you believe none of these benefits affect you directly right now, you might want to shop around for auto insurance quotes. If one of these perks applies to your current policy, sticking with your current company could be the best option, especially if the quotes you’re seeing aren’t significantly lower than your current rate.

OESA President Cites Warranty Collaboration as Industry Imperative

Neil De Koker, president of the Original Equipment Suppliers Association, OESA, recently called for automotive industry executives to work together to focus on reducing industry warranty costs. In a brief address to attendees of the Management Briefing Seminars, De Koker said that OESA has created a Warranty Management Council, responsible for developing recommendations to reduce warranty costs.

According to Warranty Week, the industry spent $11.5 billion on warranty claims in 2004. OESA proposes that it is the responsibility of both suppliers and car companies to seriously look at warranty and other non-value added costs.

"We heard from speakers today who tell us that the next two years will require significant and extreme action to maintain profitability," De Koker stated. "It is imperative that members of the industry collaborate to reduce warranty costs to keep companies competitive.

"OESA proposes that suppliers work with the car companies and each other, to provide insight into best practices that can reduce warranty costs," De Koker added. "The objective of this OESA group is to share best practices that reduce warranty costs for the benefit of the entire industry."

OESA anticipates releasing a publication that outlines a process the automotive value chain should consider to systematically reduce warranty potential during product development. Through this activity, suppliers exchange experiences working with various OEM warranty systems and collectively increase individual company knowledge.

Formed in August 1998, OESA provides a forum for automotive suppliers by addressing issues of common concern through peer group council; serving as a reliable source of information and analysis; and providing an industry voice, when appropriate, on issues of interest. With nearly 400 members having global automotive sales exceeding $300 billion, OESA represents more than 60 percent of North American automotive supplier sales.