Deciding when to refinance a car can be stressful: You don’t want to make a decision that will cost you money. We’ve identified 6 issues for you to focus on to make the decision easier.
If you’re asking yourself, “Should I refinance my car loan?” you should be considering these issues before deciding yes or no:
- Refinancing requirements
- Prepayment penalties
- Interest rates
- Your credit score
- Your income
- Time remaining on your loan
If you bought your car a few years ago or if auto loan rates have lowered significantly since you made your purchase, now may be a good time to refinance your car loan. You may be able to lower your monthly payment or reduce the amount of interest you pay.
Let’s take a closer look at each of these issues:
1. Refinancing requirements
Each bank or lender has specific refinancing requirements, so be sure to ask about the details. For example, if you have $5,000 or more remaining on your car loan ($7,500 if the loan was made in South Carolina or Minnesota) and the car is less than 10 years old with fewer than 125,000 miles on it, you may be eligible to refinance with Bank of America. Our auto loan refinance calculator will show you whether refinancing can save you money.
2. Prepayment penalties
Does your current lender subject you to a prepayment penalty for paying off your loan early? Bank of America car loans don’t have such penalties in most states (a prepayment penalty may apply in Florida, Louisiana and Ohio), but if you are subject to one, do the math: If the amount you save by refinancing is significantly greater than the penalty, refinancing may still be a good idea.
3. Interest rates
Is the interest rate you qualify for today significantly lower than the rate of your current loan? Then it may be a good time to refinance. If it’s the same or higher, it’s probably not the right time to refinance a car. Remember, though: If you’re a Bank of America Preferred Rewards or Banking Rewards for Wealth Management customer, you may qualify for an interest rate discount of up to 0.50%.
4. Your credit score
Has your credit score changed since your original car loan? If it’s improved, your better score may help you be able to qualify for a lower interest rate. Learn how to improve your credit score
5. Your income
Refinancing your auto loan so you have a lower monthly payment can make sense if your income has dipped. The lower payment can help ease the strain on your monthly budget—and if you don’t have one, think about creating a budget so you can better control all your finances.
6. Time remaining on your loan
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month—but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.