Whether you’re already aware of what auto refinancing is and how to refi or you’re just now getting around to realizing it’s something you might want to do eventually, an important question remains: When is the right time to refinance my car loan?
Our quick answer: RIGHT NOW!
Our longer answer requires a bit more explanation. There are various reasons you might want to pursue auto refi, and the when depends on the why. Maybe your credit score has improved and you’re expecting to be offered a better loan rate than you got on your first auto loan. Your financial situation could have changed recently, and now you want to lower your monthly car payment to improve cash flow, or change the interest rate and loan term so that you can get out of debt faster. Or maybe you’re just not thrilled about your current auto loan provider and want to take your business to a different lender.
All those variables aside, though, the final weeks of 2021 might be a specifically good time to refinance your car loan. We’re here to guide you through the reasons why you should seriously consider refinancing your auto loan before the end of the year.
Interest rates are unusually low right now...
Today's current auto refinance rates are historically low, full stop. There are a few reasons for that, the biggest one being the health and economic impact of the COVID-19 pandemic. Media reports from the last year have shown that the pandemic might be the best time to refinance an auto loan to save money on your car. High levels of unemployment, decreased spending, and the looming uncertainties of the early days of COVID led the Federal Reserve to decrease the interest rate in 2020 as a counterbalance. Lowering the rate encourages businesses to hire more employees, and nudges spending in general. The Federal interest rate also affects auto loan interest rates. This high-level rate adjustment filters down to influence interest rates for personal loans, including auto loans.
In layman’s speak: It’s highly likely that the federal interest rate is lower today than it was when you took out your original auto loan, which means you’ll probably get a better rate offer today than you did back then (assuming your credit score hasn’t gone down).
…but the Fed has signaled a rate increase in 2022
hose same super low rates we just covered could be nothing but a memory within a few months. The Federal Reserve (aka the Fed) has already hinted at a willingness to reverse that rate decrease next year, as the nation continues to recover from the worst fallout of the pandemic. Some traders think that an increase will come next summer; others, like former Fed economist Stephen Roach, are calling for rate increases even sooner to fight the current wave of inflation.
The “if you forgot your one credit of Econ” version: Those low, low rates are not here to stay. Get in on a lower auto refi interest rate while the getting’s good! You really don’t want to miss out.
Refi now to get your money right
Aside from these once-in-a-blue-moon factors, the end of the year is a good time to consider car refinancing in general. Some people want to their lower monthly loan payment, others want to pay less money over the whole life of the loan. Some want to get to debt-free as quickly as possible, and some just want to change lenders to receive the superior customer support of a small bank or local credit union. (Read our full article about when and why to auto refi for more info.)
Whatever your reason is, you probably want to get your money right, whatever that means for you. What better time to clear house financially and start sprinting toward your updated financial goals than the end of the year?
Refinancing your auto loan today improves your cashflow for the foreseeable future and gives you clarity and peace of mind as you prepare to conquer the new year’s challenges. The longer you wait to refinance, the more money out of your pocket. No better way to prep for the new year than by saving money!
How to evaluate if refinancing your car right now is a good idea for you
Those are all great reasons you should really start looking into auto refi right now! Here are a few more that you might not have considered.
Your credit score has gone up. This is one of the major reasons to refinance auto loans. An improved credit score means that a lender, whether a bank or credit union, has better information about your ability to repay a loan. This changes their calculus when determining what rate to offer you. Better credit almost always means a better rate, which means you pay less overall with the new loan than you would with your existing loan.
You've established sufficient payment history. People early in their financial journey, who don’t have a lot of credit history to begin with, aren’t usually offered the best interest rates. Like your credit score, the amount of time that you’ve been paying down credit (also called credit history), is an important factor for the lending financial institution, whether it’s a huge bank or a tiny credit union. If this is your first auto loan, you’ll need to establish repayment history before considering refi: typically one year. If you have a longer credit history, you can consider looking at refinancing your car loan after six months.
What you need before refinancing your auto loan
You sold yet?! Well let’s fast-track you on the way to refinancing your car.
The first thing to do is decide your overall goal: Do you want to lower your monthly car payment? Do you want to pay less money in the total life of your loan? Do you want to get out of debt ASAP, even if that means a shorter-term loan and a larger monthly payment?
Depending on those factors, decide if you want to change your loan term (aka the repayment timeline), and if you want to increase or decrease your monthly auto bill. Here's the other information you’ll need:
Credit score. By now you know how important that is! If you don’t know yours, you can check it using a free service like Experian.
Your ID and car details. A lender will want to know details about the car you’re refinancing. Have your car’s make, model, VIN number, and mileage on hand. You’ll also need to have a valid driver’s license.
How — and where — to refinance your auto loan
Once you have that all lined up, the last piece of the puzzle is figuring out where to refinance your auto loan. Don’t worry: We have a whole article explaining the how and where of auto refi. But if you don’t have time to read the whole thing, here’s a spoiler.
The Kasasa Loan® is a new kind of loan that arms community financial institutions with the tech-forward tools they need to reach people like you: Informed and ready to borrow smarter. We are the only financial tech (aka fintech) company whose mission, for nearly 20 years, has been to help community financial institutions survive — and thrive. The Kasasa Loan is the only auto refinancing loan with Take-Backs™, a unique feature that lets you pay ahead to get out of debt faster, but still have access to those extra funds when you need them.
Now you know why right now is a really, really good time to refinance your auto loan. And we have the tools for you to take the next step today. Check out the Kasasa Loan!
Discover more about the Smartest Way to Borrow in our previous blog post, "How — and where — to refinance your auto loan."