Auto Refinancing: When and Why to Consider

Knowing when to repurchase a vehicle can be complex, but if you approach it properly (and ask the right questions), you can make the right choice. You should repurchase a vehicle when doing so can help you save money, get a lower down payment – or both. You should probably go straight through the repurchase process if you’re swamped on your current loan, you’ve recently purchased the vehicle, or your current loan has prepayment penalties.

When should you repurchase your vehicle loan

There are some situations where you should repurchase your vehicle, but first look closely at your finances and make sure you understand the details of the new loan you are applying for. Here’s when you should repurchase your vehicle loan.

Your credit score has improved

Your credit rating is very crucial in auto finance as lenders rank applications by credit levels. The APR you receive, as well as whether you receive an offer, are largely determined by the level of credit you are at. If your credit score has improved since you initially purchased the vehicle and you’ve moved up a notch, then you are likely to qualify for a better financing deal.

You want to change the loan term

It also makes sense to repurchase your vehicle loan when you need a lower monthly payment. You can extend the loan duration during the process of repurchasing your vehicle to get a lower payment. Still, it’s important to note that extending the length of the loan, known as the term of the loan, reduces the down payment, but it also increases the amount of interest you’ll pay over time. And it works the other way too: shorten the term and your monthly payment will go up, while the amount of interest you pay overall will go down.

When You Should Not Repurchase Your Car Loan

Here are some circumstances where it would be unwise to consider repurchasing your auto loan.

Do you have an older vehicle?

If you own a vehicle that is 10 years old or older, you may find it difficult to locate a lender willing to repurchase. Many lenders place age limits on vehicles that qualify for the loan. If you are in a situation where you need to repurchase, consider taking out a personal loan or trading in the vehicle as alternative options.

You have a negative balance on your loan

Finding a lender to repurchase a vehicle when you’re overdrawn on your loan isn’t easy. Even if you manage to find a lender, it might not be the best choice. The interest rate will likely be much higher than average and will cost you more in the long run.

When you repurchase a vehicle with a negative balance, you increase the total cost of the vehicle. One way around this is to pay the difference in cash so that you are no longer in a negative balance and can then repurchase at a lower rate. Even if it takes a few months to make extra payments, it might be worth it in the long run. Alternatively, you could also consider another form of financing, such as a personal loan or a home loan, to help cover the full cost of the repurchase.

You purchased the vehicle less than 6 months ago

While it is technically possible to repurchase your vehicle shortly after purchase, it is best to wait at least six months to a year to allow your credit score to recover after your first vehicle purchase, establish a payment history, and recover any depreciation that has occurred. during purchase. Unless there are other reasons to repurchase, you are unlikely to get a lower rate than your current rate.

It is crucial to ensure that you can acquire a new vehicle before making the initial purchase. If there is any doubt about your ability to make the payments, it is best not to make the purchase and look for an alternative.

Your loan has prepayment penalties

Some auto lenders charge penalties for paying off the loan early, although most do not. If your current vehicle loan includes prepayment penalties (usually indicated in the small print), it’s important to do some math to determine whether repurchasing is a good deal after paying the penalties.

Is it worth repurchasing?

If you’re simply repurchasing and you know you’ll get a better rate and save some money, it’s a no-brainer. However, if you’re not sure if you’ll save money, use a vehicle repurchase calculator to estimate your savings and decide if repurchasing makes financial sense.

In many cases, people choose to repurchase because they need to reduce their monthly payment, usually due to an unforeseen financial crisis. Finding the balance between your immediate financial needs and long-term financial health is never easy, but if you do the math and plan accordingly, you can make the right financial decision for you and your family.

If you need to repurchase your vehicle to improve your cash flow, you can repurchase now to get back on a positive financial footing. Once your personal finances are stable, start making extra payments on your loan to pay it off faster, as long as there are no early payment penalties on your new loan. This will allow you to pay off your vehicle loan sooner and save on interest expenses.