What happens when you refinance a car? Refinancing your auto loan may lead to a lower monthly payment, a shorter term or both. Your outcome depends on a wide range of factors, including the value of your vehicle, how much you owe on your current loan and your credit standing.

If any of these factors have changed since you bought your car, you owe it to yourself to find out why refinancing might be a good idea.

Your credit score improves

Your score could determine the interest rate on your car loan and it may impact your auto insurance premium. Ask your lender to consider giving you a lower rate, especially if your current credit score is higher than when you bought your car.

You borrowed before shopping around

Maybe you needed a new-to-you car fast and borrowed without shopping for the best loan. But now, you have the time to shop for better loan rates. By getting multiple offers you can ensure the best rate available for your auto loan.

You need to modify your monthly payment

In a better financial situation now than when you bought your car? Less debt frees up how much you can pay per month. Paying more over a shorter-term loan, when combined with the lower interest rates that often come with a loan refinance, can save you a lot of money over the long haul.

However, if money is tight, think about refinancing into a longer-term loan. While you might end up paying more in interest, you can reduce your monthly payments and free up money you need right now.

You want to buy out your car lease

If you want to keep your leased car, look into financing the vehicle at a lower rate. Check your vehicle contract to determine the residual value or buy-out amount. If it is less than the car’s current value, you may benefit from a refinance.

Whatever the particulars of your situation, consider all the factors at play. Use an Auto Loan Calculator to see what you might save.