You’ve recently purchased a car, but you’ve found that your initial excitement over your new vehicle is being tempered by the strain your monthly car loan payments are placing on your finances. It’s natural to start looking for ways to get out of an onerous car loan, and you may be wondering how soon you can refinance your car.
There’s no set time frame for when you can – and should – refinance your car loan. However, there are definitely a variety of factors that will determine the time that makes the most sense for you to refinance. Ultimately, the decision on how soon to refinance should be driven by when you’ll be able to unlock the greatest savings benefits – whether through a lower interest rate, lower monthly payments, or both.
Technically, there is no mandatory waiting period before you’re allowed to refinance your car loan. However, most lenders won’t allow you to refinance until the vehicle title has transferred from the manufacturer or prior owner to your current lender. Often, it may take at least two to three months before the title transfers. Once this process is complete, you can begin exploring refinancing options.
Some lenders may allow you to refinance immediately after the title has transferred, while others may want the loan to be open for at least six months (or sometimes longer) before they will refinance your car. Therefore, it’s always a good idea to look into whether a specific lender has a set waiting period prior to submitting an application.
In general, you’ll reap greater savings benefits by refinancing early in your loan term since the interest on car loans is front loaded. This means that early in your loan term, you’re mostly paying interest and as you move towards the end of the term, you’re primarily paying off the principal. Since refinancing helps you save money on interest payments, the earlier you do so, the more you can save.
That being said, it’s often good to wait at least six months before refinancing your car loan. When you applied for your initial loan, the lender made a hard pull on your credit report, which may have resulted in a temporary reduction in your credit score. By waiting six months to a year before refinancing, you will give your credit score time to rebound from this temporary reduction, and this may help you qualify for a lower interest rate.
Keep in mind that while you can refinance at any point after the title has been transferred to your lender, that doesn’t mean it’s always in your best interest to refinance your car loan right away. The best time to refinance is the time when you’ll save the most money, and there are a variety of factors that will impact your ability to maximize your savings.
Your credit score is the most important factor impacting the interest rate you’ll qualify for when you refinance. If you already have a credit score of approximately 700 or higher, you will most likely qualify for the most competitive rates. If your score is lower, it often pays to wait until you’re able to raise your credit score before you refinance. You don’t necessarily need to wait until your credit score is at 700 to refinance, but even raising it 40-50 points from its current level can equate to significantly better interest rates.
The good news is that making your monthly car loan payments on time will help you raise your credit score. You may find that within six months to a year of making all loan payments on time, you’ve experienced a significant increase in your score.
Another way to potentially raise your credit score quickly is to review your credit report for errors. You can request a free credit report from the three major credit bureaus (Equifax, Experian and TransUnion). If you notice any mistakes on your credit report that may be lowering your score, you can dispute the error with the credit bureau and have it removed from your report. Once the erroneous damaging information is removed, you should see your credit score rise.
Often, vehicle manufacturers will offer incentives to boost the sale of new vehicles. A common incentive offered to buyers with excellent credit is a choice between a large rebate or a very low interest rate. If you choose the rebate, your interest rate will be higher than the promotional rate. Conversely, if you choose the low promotional interest rate, you will no longer be able to get the rebate.
You can maximize your savings in this scenario by taking the rebate and then refinancing a few months after purchasing the car. This can potentially enable you to lower your interest rate to within the ballpark of the low promotional rate you were initially offered, allowing you to capitalize on both the low interest rate and the large cash rebate.
Before refinancing, it’s important to read the terms of your current loan to make sure there are no prepayment penalties. Some lenders may charge substantial penalties if you pay your loan off early or refinance with another lender. If this is the case, you will need to crunch the numbers to determine whether your savings from refinancing exceeds the money you’ll pay in penalties.
If interest rates have dropped since you took out your car loan, it may be a good time to consider refinancing. Market rates play a major role in the interest rates that lenders can offer, and by timing your refinancing with a drop in market rates, you may be able to maximize your savings.
Keep in mind that you don’t have to wait till interest rates go down to refinance. In many instances, you’ll still be able to lower your interest rate when you refinance if market rates have remained steady or even if they have increased. But if you see rates are starting to drop, it may be worthwhile to wait a few months to refinance once interest rates are closer to their low point.
If you’re considering refinancing your car loan, iLending can help you unlock the best rates. Our exclusive You First Approach™ makes the refinance process easy and hassle free. You’ll be paired with a loan consultant who will spend time finding out about your goals for refinancing. Your loan consultant will then compare options from our network of over 50 nationwide lenders to find the solutions that most closely align with your goals.
You’ll have an opportunity to ask your loan consultant any questions you may have about the options we recommend to ensure you choose the one that best addresses your needs. Once you’ve selected a loan, we’ll help you fill out all paperwork and follow up with your current lender to make sure your existing loan is paid off properly. This process gives you peace of mind that you’re receiving the best possible terms and that everything is handled correctly.
On average, customers save $143/month when they refinance a car with iLending. This monthly savings can help you take control of your finances and make it easier to pay your bills.
Apply now to get the car loan refinance process started.