Car loans come from lenders and help borrowers pay for a vehicle. Though some think these loans are only available for new car shoppers, those buying a used car can also qualify. Car financing requires that the borrower complete an application and provide proof that they have a guaranteed source of income to pay off the loan. The lender will run a credit check and may also contact any references the borrower supplied. Many people refinance their loans later because they qualify for different or better terms. Anyone who thinks they may need to refinance a car loan can look at the top five reasons to do so.
Smaller Monthly Payments
A common reason to refinance a loan is that the borrower can no longer afford their monthly payments. Monthly car payments can range from $200 to more than $700. If the borrower lost their job or took a job that pays less, they may need to modify their loan to reduce their monthly payments.
Credit Score Changed
According to Lantern by SoFi, autopay refinance helps the owner “save money over the lifetime of the loan through a reduced interest rate.” Many borrowers find that they can save money and qualify for better loan terms when they improve their credit scores. Even if their score only rose by 20 to 30 points, refinancing can help them save money.
Change Loan Length
Auto loan repayment terms usually range from 24 months to 72 months. Some lenders now offer longer terms that give borrowers up to 84 months to pay down their car loans. One reason to refinance a loan is that it changes the loan length. Borrowers may want to extend their term and get an extra year or two to pay off their loans.
Remove a Name
Though not as common as some of the other reasons, borrowers may refinance their loans to remove the name of another person. For example, some borrowers apply with a cosigner who is someone with better credit history. This helps them qualify for a lower interest rate and better terms. When their finances change, they can refinance their auto loan and take the cosigner’s name off the loan. This might happen because the cosigner passed away or the cosigner is now the former spouse of the borrower.
Get More Money
Refinancing a car loan can also help the borrower get more money. For example, the borrower might get a car loan they can afford but later find that they have more essential bills they need to pay. When they refinance their loan, they can get a lower monthly payment, giving them more money than they can put towards other bills or expenses.
While some borrowers think they’re stuck with the terms they got when they took out a car loan, they have the option of refinancing the loan. Some of the top reasons why people refinance their car loans today include changing their monthly payments and other terms or removing a cosigner’s name.