How Long Should You Wait before Refinancing an Auto Loan?
Refinancing an auto loan will bring unique fees and service charges. Since refinancing tends to favor the borrower, lenders are reluctant to offer the option right away. It is best to wait for one of three scenarios before considering refinancing: one, the loan principal has been significantly reduced; two, the market has changed drastically; or three, you can no longer afford the loan.
- Once you have reduced your loan principal by at least half, you will find better rates on a new loan in the same remaining amount. Lenders know you can seek a better option from a third party to close the remainder of the loan. They are more willing to work with you in order to keep the loan active.
- If the credit market has changed in a way that makes loans taken today significantly cheaper than those taken when you purchased your car, your lender may have no choice but to refinance your loan. This occurs when the national prime rate drops or the credit markets come into new-found liquidity.
- When something occurs that prevents you from continuing loan payments, you should attempt to refinance immediately in order to avoid defaulting. Contact your lender right away if you are ill, lose your job or suffer an injury.