When Is the Best Time of Year to Refinance a Car Loan?

Taking a new car loan at the end of the year can lead to savings, but there is not as definitive a time to actually refinance a car loan. The deal you get on your refinanced loan depends more on your personal financial and market conditions, and these factors do not follow a predictable time table. Refinance your loan when these factors are favorable.

You Have Cash to Pay Down a Sum

Paying down a large sum on your loan means you can refinance for a new loan at a much lower principal. This can lead to lower interest rates, lower monthly payments or a faster pay off. Many people receive an influx of cash around the end of the fiscal year for their employer in the form of a bonus. Using your bonus to pay down a large chunk of your loan and refinance is a smart way to spend the money.

Your Credit has Gone Up

Anytime your credit takes a leap in the positive direction, you should be thinking about where you can capture new interest rate savings. Typically, your credit score needs to be up for a few concurrent months in order for a lender to offer you an attractive loan based on that rate. Your credit can go up for a number of reasons, such as paying off another loan. Keep track of your credit with a credit monitoring service to stay aware of possible refinance opportunities. 

The National Prime Rate is Low

Aside from personal factors like your liquidity or credit score, there are market factors that can present a favorable time to refinance your loan. One of those factors is the national prime interest rate. This rate is set by the Federal Reserve, and it is typically lowered in response to a slow economy. The national prime rate can adjust at any point during the year. The lowest rates tend to be in the slower market months, like late summer and early fall. Keeping track of the national prime rate will help you understand whether your interest rate is competitive. If the rate drops, and your rate is no longer competitive, it may be a good time to contact your lender to ask to refinance your loan. Typically, the national prime rate needs to stay down for at least one quarter in order for lenders to react.

The Credit Market is Strong

The credit market refers to the combined industry of all lenders, including banks, mortgage lenders, auto lenders and even credit card companies. When these groups are extending loans in high numbers, you may find a better ability to get a low refinance rate. These companies rarely extend loans at the beginning of a new year because borrowers have already taken holiday loans. A better time is usually when less people are borrowing, such mid-summer or late fall. You can get an idea for the liquidity in the credit markets by watching advertised interest rates at different lenders such as banks and auto dealers. 

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