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Is now a good time to refinance a car loan?

Is now a good time to refinance a car loan?

With the world in turmoil, people being furloughed, laid off or worse and employers having to save money wherever they can, cash can be tight. If a car loan makes up part of your monthly outgoings, would now be a good time to refinance?

Maybe yes. Maybe no.

Refinancing should be more about your personal situation than the global situation. Make a judgement according to how you’re doing right now rather than how everyone else is doing.

Reasons to consider refinancing a car loan

There are several situations where it may be beneficial to refinance your car loan. They include:

Improvements in your credit score

If you got a bad credit car loan or are paying a higher rate due to your credit score and things have improved, it may be a good time to refinance.

You’re at risk of defaulting your existing car loan

If you are struggling to pay off your current car loan and cannot live without your car, refinancing may be an option.

When refinancing a car loan is not a good idea

There are also situations when refinancing your loan may not be beneficial. Those situations include:

You owe more than the car is worth

If your vehicle has depreciated faster than the loan has been paid, it is not a good idea to refinance as you will have to pay the difference when you settle.

You want to extend the loan term

If you’re looking to extend the term of the car loan to lower the monthly payments, refinancing may not be the best idea as you will be paying a lot more interest. It may work to prevent defaulting but there may be better alternatives.

Your current car loan has an early repayment clause

If your car loan has a penalty for early repayment, you definitely don’t want to refinance. These loans are rare but are still around.

If you’re considering refinancing because of coronavirus, talk to your lender first. Most are offering flexibility to help us all survive the situation. Some lenders are offering payment holidays, payment reductions and other tools to help you service the loan while keeping your head above water.

Whatever you think of doing, consult your lender first and discuss your options with them before you default or do anything drastic.

Refinancing is an option but it may not be the best one. Don’t jump in with both feet without checking the alternatives first. You might find your current lender has a much better option.

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