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.
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.