When to Refinance with Used Car Loan Rates

Sometimes when you purchase a vehicle, you are stuck with a less-than-stellar interest rate. This could be because of the economy or because your credit was not as good as it is today. Yet many people carry that higher interest rate without realizing how accessible a lower rate is for their new situation. When you lower your interest rate on your vehicle loan, you will pay less throughout the life of the loan and save some serious dough.  Sometimes you score a sweet deal on an interest rate at a time when the Fed had them lowered and refinancing is not a smart option. But oftentimes, refinancing your auto loan can help you save in the long run with lower interest rates. To figure out if you can receive better used car loan rates, there are a couple of factors to consider.

The Federal Reserve Has Lowered Interest Rates

The Federal Reserve Bank may have lowered interest rates from the time that you purchased the vehicle. When the Federal Reserve Bank lowers interest rates, it tries to encourage more consumers to apply for a loan. This is also beneficial for helping you save money on your loans, especially used car loans. You can bring in your paperwork to your local financial institution and they will be able to check if interest rates have been lowered by the Fed since the time of your loan.

Used Car Loan Rates Were Not Optimal at Time of Purchase

The place you financed your auto loan in the first place may not have done the research to provide you the best interest rate possible. Dealerships and other financial institutions are not obligated to find you the best used car loan rates for your vehicle purchase. Plus dealers often carry a higher borrowing rate to create more profit for their dealership. You should always investigate to see if there are lower rates available.

Your Credit Score Allows for Better Loan Rates

Your credit score may have improved since you were first approved for financing for your vehicle. The easiest, most basic way to think of credit scores is that if you have a higher credit score (usually from 700 and above), you will more often be able to obtain a lower interest rate and making it easier to afford payments with a used car loan. For example, if you had a 655 score and improved your credit score to 710, then you would be more able to earn lower used car loan rates when refinancing.

A Lease Agreement is Set to End

If you financed your vehicle on a lease and you are ready to purchase the vehicle, then looking at used car loan rates is important to get the best deal possible. In most vehicle leasing contracts, consumers are given the option to purchase the vehicle or let the dealership take the vehicle back. If you decide you want to purchase the vehicle, you may qualify for refinancing. There are a few circumstances in which this cannot be done, such as when the value of the vehicle is worth less than the loan balance (commonly referred to as “upside down” refinancing), the vehicle is past a certain age when lenders do not allow for refinancing, or the outstanding balance that needs help paying off with refinancing. It is important to investigate with financial institutions to see if you are able to receive good used car loan rates for purchasing from a lease.