If you went into the pandemic with a car loan, you might be close to having it paid off. However, if your goals have changed or if your financial situation has become more challenging, you may be a great candidate for an auto loan refinance.
Things to Consider for Auto Loan Refinancing During COVID-19
Free Up Cash
Interest rates have dropped since the start of the pandemic. If you’ve been able to make regular payments, you may be able to take the remaining principal owed and
- refinance for the same terms at a lower payment
- refinance over a longer term to lower payments significantly
- either way, free up cash for other purposes
According to Lantern by SoFi, “you may have been paying a higher interest rate because you financed through a dealership. You may have needed to borrow with the help of a co-signer”. If you can refinance in your own name for a longer term, both you and your co-signer can enjoy a reduced credit burden after your auto loan refinancing with Lantern.
Check Your Car Valuation
Once you have your car’s valuation, look for soft pull loan options to avoid negative credit dings while you choose your best loan option. Do carefully review your monthly insurance payment. If you always carry full coverage, no worries. If you plan to reduce your insurance on your vehicle to liability only once the car is paid off, make sure you aren’t going to pay more or extra insurance while you have a loan on the car.
You’re Looking to Make a Bigger Purchase
If you’ve been saving up for a house, refinancing your car can demonstrate a lower debt to income ratio. Should you find that your car’s condition and current mileage make you a good candidate for a refinance, you can increase your savings while you look for the right house to buy.
It’s a good idea to track your credit score before you take the plunge on your car re-fi. Functionally, a car refinance is
- a new loan, even if it lowers your debt burden
- a closed account when your lender pays off the first car loan balance
- temporarily hard on your credit score
If you’re pre-approved for a mortgage and need to demonstrate a lower debt to income ratio, let your lenders know what you’re planning to do. You want to avoid getting denied because your credit rating has dropped, short-term, for long-term gains.
An auto loan refinance can be a very good deal. It will result in a short-term hit on your credit rating. If you have a lot of months left over at the end of your money, carefully review your budget before you move to refinance your car. Paying for much longer just to free up cash is not the best option unless you have no other way to make up the money.