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Refinancing Is Not Always a Good Idea Refinancing your existing car loan is a good idea as long as you can achieve what you are trying to accomplish. Refinancing goals are usually lowering interest rates or extending loan terms so that monthly payments are lower. Below are some scenarios where refinancing your car loan just doesn't make any sense. What is the current interest rate on your existing auto loan? There is no need to refinance your car loan if you have an interest rate of 6% or lower. The likelihood of achieving a lower interest rate is unlikely. Is your car a new car or a used car? You will not get a lower interest rate when you refinance a new auto loan. Why? Because you will be refinancing your new auto loan into a used car loan. Auto loans rates of used car loans are higher than rates associated with new car loans. What is the condition of your vehicle? If the depreciated value of your car has increased, the value of your car will decrease. This can put you upside-down in your auto loan. Meaning, the amount of money you owe on your loan balance is more than what the car is actually worth. Auto loans are secured by the worth of the vehicle. With the car being worth less than the loan, the lender is taking on more risk and will have to be compensated. Higher compensation is achieved through greater interest rates on the car loan. If none of the above scenarios pertain to you, then refinancing you car loan still may make sense. You can apply for a free, no obligation refinance quote.
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