When to Refinance Your Family Car


20% of new car buyers tend to pick a loan whose interest rate is 2% higher than the best value they could get with a good credit score, according to Theconversation.com. In case this is you, it means you will have to pay more for your car throughout the life of the loan or even buy a less intriguing car to fit your budget. While most people do not realize this, coming to terms with these facts can be financially frustrating.

Most people believe they need to get car finance deals from their dealership or even from their banks, but what they don’t realize is that shopping around could help find the best rates. However, if the damage is already done, refinancing your car can be a great option. Although refinancing is not a silver bullet for every situation, there are times when it is a wise decision.

Here are some details you should know about refinancing your family car:

Refinance When Your Credit Score Improves

Your credit score will typically dictate the rates at which lenders can offer you a loan, according to Bob Gillingham Ford – a family owned Ford dealer. A high credit score will invite the best rates from lenders as they find you to be a creditworthy borrower. A low score, on the other hand, might land you a car loan, but at painfully high rates.

Luckily, your credit score is bound to changes from time to time depending on your credit history and credit utilization ratio to name a few aspects. In case your credit score increases before you are well into repaying the loan, then a car refinance might be best for you. Since lenders will see you as creditworthy, you can save a lot by getting approved for a loan to offset the remaining value of your car at a lower rate.

Refinance If The Interest Rates Are Favorable

Loan interest rates might reduce, or even better, you might find a loan equal to your current one at a lower rate. In such cases, refinancing your auto loan is an excellent option as lower interest rates are equal to lower monthly payments. Since a good number of auto loans tend to be amortizing loans, according to The Balance, you should refinance your loan pretty early.

This means you will need to pay fixed monthly payments on which the interest is added. While the initial cost of repayment will be higher, the payments will reduce with time once you are done offsetting the interest.

Avoid Refinancing If You Have Paid Most Of The Loan

An amortization loan means that you will offset the interest at the beginning of the loan. As a result, you might almost be paying no interest in the last few months of the loan. For such a loan which has lived up most of its life, it will be less economical to refinance as you might go back to repaying some interest.

It all trickles down to the math you do before making the refinance decision. In case the payments will be lower even with the new interest rates, then refinancing is worth a shot. On the other hand, for a loan which will barely be lower, finishing off the repayment might be worth more than the hassle of refinancing.

Avoid Refinancing If Your Car Loan Is Upside Down

If your car loan is upside down or underwater, you owe more than what the car is worth, as noted by a US News article. This can arise from buying the car without a down payment or at a low one. Alternatively, it can arise from the car depreciating within the first year of purchase – cars typically depreciate 10-20% within the first year.

Most lenders will tend to shy away from refinancing you in such a situation. To be safe, try and minimize the loan to return to the favorable state.


Refinancing your auto loan is not always the best option. What matters most is looking into the details of your refinancing options. Be sure to weigh your potential savings before choosing to refinance your loan.


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