OneMain Financial: When to Refinance a Car Loan
NEW YORK, June 8, 2023 (Newswire.com) - OneMain Financial: The Federal Reserve Bank has been steadily raising interest rates since 2022, so it seems like now is not the right time to seek any new funding. That's not necessarily the case with folks who want to refinance car loan terms. There could still be some savings involved in refinancing, despite the higher rates banks are currently charging.
Refinancing a car loan to get a lower interest rate
Refinancing is typically about saving money. The best way to do this in the long term is to get a new loan with a lower interest rate to pay off the old car loan. Many new and used car owners do their initial financing through the auto dealer's finance company. That's convenient, but those lenders don't always offer the best rates and terms.
Lenders like banks and credit unions could have a better deal available. Online lending platforms can take one loan application and shop it around to multiple lenders, thus giving the applicant various loan options. One or more of these could be more cost-effective than the current loan, provided the lender's fees aren't too high or the new term longer than necessary.
It's also important to note that credit scores change over time. Car owners who bought their vehicles several years ago and made all their payments on time may have a higher score when they refinance. Lenders base their interest rates partially on the creditworthiness of the borrower. When a credit score increases, it might be a good time to refinance car loan terms.
The effects of depreciation and owner equity on refinancing terms
According to Experian, new automobiles depreciate 20% after the first year of ownership and 10% a year after that. Used cars depreciate more slowly, but their original value is also much lower when the sale is closed. Car owners thinking about refinancing should check on the book value of their car before considering refinancing. The Kelley Blue Book is an excellent resource for that.
A vehicle's current or market value is one of the variables used by lenders to calculate new terms and conditions for refinancing. Lenders also look at how much equity the owner has in the vehicle and what's left to pay off before they own it completely free and clear. If the car is worth more than the amount owed, it will be easier to find a suitable lender.
Refinancing to reduce monthly payments
Saving money by lowering the interest rate isn't the only reason car owners refinance their vehicles. As consumer prices continue to rise, the need for lower monthly car payments has become a common dilemma. Refinancing an original car loan into a longer-term loan could reduce those monthly payments to provide some short-term relief.
Lower car payments may sound appealing, but this option typically results in the borrower paying more in total interest because additional months are added to their loan. That doesn't make it a bad choice. Any car loan refinancing decision should be based on immediate and long-term needs. Examine all options before deciding.
About OneMain Financial
OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.
Source: OneMain Financial