What Every Single Parent Needs to Know About Refinancing a Car Loan
Your new single-parent budget can be a struggle. Finding ways to make your monthly bills more manageable will help reduce your overall stress levels. One way to do this is to refinance your auto loan, ideally reducing your monthly payment and interest rate, in addition to the length of the loan term. This can also free up resources if your budget is tight.
Before starting the refinancing process, however, there are a number of important details you may not know about and a few different ways to get the best deal possible. If you’re armed with information, you can make the most of this opportunity, while reducing monthly payments and stress.
The Details Are Important
Before refinancing, certain details will impact the value of your refinance and how much money you end up saving. Here are three things to consider:
- Have interest rates gone down? If not, refinancing may not be a good way to reduce your monthly payment. In this case, extending the loan repayment period is another way to reduce monthly payments.
- Do you know your FICO score(s)? You have more than one version of your FICO score, and the auto loan industry uses a specific version. Learn more about FICO score versions at MyFico.com to make sure yours is where it should to qualify for a better interest rate. Remember to run a free credit report as well to ensure there are no issues there either.
- Do you know the terms of your current loan? Some lenders charge pre-payment penalties (fee for paying off your loan earlier than planned), explains BankRate, to the tune of $25 to $200.
You May Get a Better Deal With Your Current Lender
Before looking for new lenders, reach out to the institution you’re currently working with. “If you already have a good relationship with your lending agent, he or she may be able to pass along some solid advice and recommendations,” explain experts at Auto.Loan. They continue, “After all, your current lender will make the most profit when you repay the loan through the full term rather than all at once.”
Make an appointment to go over your options and be ready to say, “Thanks, but no thanks,” if their offer is less than stellar. If anything, their advice may be helpful in finding a new lender that will work better for your budget.
Do Your Due Diligence
If you’ve found that you can’t get a better deal with your current lender, put in the work to find the next best option. To get the best rate possible, MyFico suggests checking with at least two or three lenders to find the lowest rates that you qualify for.
When you know the various rates and terms, use a tool like Lending Tree’s Auto Refinance Calculator to get an analysis of the difference between your current loan and the new options. Calculator insights include change in monthly payment, loan term, and interest cost, making it easy to compare your options quickly and clearly.
When Not to Refinance
Refinancing your car loan may be the best way to save on both your monthly payment and the overall cost of your car. However, while the refinancing process is quick and simple with minimal fees involved, it’s not always the best option for everyone. You may want to reconsider if any of the following scenarios apply to you.
- If you owe more than the car is worth. In this case, the loan may only be partially secured because your loan balance is higher than the car’s market value.
- If you’re also trying to secure credit elsewhere, like with a mortgage.
- If you can only get a loan term that lasts longer than what you have now. This means you’re simply trading a lower monthly rate for an overall higher loan total.
If you are in any of the above situations, you may want to re-think refinancing, and instead look to extend your loan term as a temporary stop-gap.
Whatever you decide, consider all the details before moving forward to ensure you end up in a better financial situation than where you started.
About the Author: Jessica Thiefels has been writing for more than ten years and is currently a full-time writer and content marketing consultant. She’s written for Reader’s Digest, AARP, Lifehack and more. Follow her on Twitter at @Jlsander07 for money-saving ideas, health tips, and more.