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When is the Best Time to Refinance Your Car?

If you purchased a vehicle within the last five-to-seven years, you may have concerns about your auto loan. Fluctuating interest rates or changes in your personal financial situation may make refinancing your auto loan a beneficial option. A new loan could potentially:

  • Lower your interest rate
  • Enable you to pay off your car more quickly
  • Lower your monthly payment

Maybe your income has increased and you'd like to pay off your vehicle loan sooner than it is scheduled to end. Perhaps your credit score has risen and you qualify for a lower rate. Or, maybe you just want to reevaluate your options.

Whatever your reasons for considering a refinance, timing is crucial. To help you make the decision that’s right for you, we’ve gathered some information on the advantages and disadvantages of refinancing at various times during your loan period.

In the First Year: Benefits of Refinancing Right Away

If you needed a new ride and didn't have time to shop around for a competitive rate, you may have settled for one of the first financing options offered. Financing through a dealer is quick and provides a one-stop car shopping experience, but it may not be in the dealer's best interest to secure the lowest interest rates for you.

If you're regretting your decision, don't panic! You may be able to move out of that agreement and into one that works better for you. Dealer financing often also contains hidden fees, or clauses that raise your interest rate after a year or two. Once you've had time to read through all the fine print of the initial financing you chose, you may decide that refinancing early-on is in your best interest.

If you purchased a used vehicle, it's often best to refinance earlier rather than later. Older cars may not qualify for refinancing, which means you should get a new loan before it’s too late. If you bought new, you may still qualify for a “new car” interest rate, which is typically lower than the rates for used vehicles.

After 1-2 Years: Should You Wait a Little Longer?

After a year or two, you probably have a solid grasp on how your car payment affects your monthly budget. Your financial standing or credit may have also changed significantly during this time. Did you get a new car when your credit score was low? You’re not alone. According to USA Today, more than 20 percent of new car loans go to subprime borrowers.

Actions that may have a meaningful, positive effect on your credit score include:

  • Paying down large credit card balances
  • Getting an error removed from your credit report
  • Having negative items age off of your report
  • Getting a credit limit increase

Refinancing one-to-two years after your initial financing agreement means that you have the time to shop around for a lower interest rate, extend your loan term to lower your monthly payment or make a change to the term of your original loan. Remember, extending your loan is not a requirement with refinancing. So, if you have a five-year loan with only three years left on it, it may be possible to get a three-year refinance.

Within Two Years of the Payoff Date: Is Refinancing Still Worth It?

Even if you’re getting close to paying off your vehicle, you could still benefit from refinancing. Maybe something has occurred that requires you to change your term or monthly rate so that you can lower your monthly payments. Or, perhaps your current lender is difficult to work with — their representatives may be hard to reach and challenging to communicate with.

The good news is that it's rarely too late or too early to refinance. If you can save money on payments at any point in your car loan, or if you'd rather pay off your vehicle in one year instead of two years, you may want to look into refinancing options. Lenders may offer incentives for refinancing, such as the cash back and 90-day payment break offered by Desert Financial.

If you can lower your interest rate by at least one percent — or if you're willing to extend your loan so that you can lower your monthly payments — refinancing within two-to-three years of your payoff date may be a good option.

Get Help from Caring Refinance Experts

With so many numbers to consider — interest rates, loan terms, credit scores and more — it can be difficult to determine if refinancing is worthwhile. Ultimately, you’ll have to do the research and get the details from your credit union or bank to make an informed decision.

The first step is determining what your options are based on your current situation and needs. After you have all the numbers in hand and can see how they impact your finances, you can make a vehicle-financing decision you're truly comfortable with.

Need expert help? We’re here for you. Contact a Desert Financial representative at 602-433-LOAN, visit a branch, or apply today! With our Auto Three-fi™, you could get triple the perks of traditional refinancing — in addition to local service and an exceptional member experience.

Want to buy a new car or truck instead of refinancing?


The material presented here is for educational purposes only and is not intended to be used as financial, investment, or legal advice.