Choosing when to refinance can depend on a few different variables, such as the value of your home or car, how much you still owe, and your current credit rating. Here are the three most common reasons people refinance:
The biggest factor determining your loan rate is your credit score. When your lender builds a loan package, they pull a credit report as a central part of that process, and that number determines your interest rate, whether you’ll pay an insurance premium, and what other fees your lender might charge.
Monitor your credit score and report regularly. Use AnnualCreditReport.com, the only authorized website that allows you to get a free report every 12 months from each of the three major credit bureaus—Equifax, Experian and TransUnion. Nine months of steady repayment can often boost your credit score, resulting in a chance for a better interest rate.
This is especially important if you didn’t have much credit history when you purchased your car or home. Interest rates are typically higher for new borrowers, so just a few months of solid payments may open up opportunities to get a better rate.
The exciting part of buying a home or car is shopping for the perfect home or dream car. Once you’ve found it, it’s often a rush to get through the rest of the buying process. This is especially true when you by a car; the dealership helped you choose a car, told you the price, the monthly payment, and everything else. They probably didn’t discuss lenders with you.
Dealers usually have a smaller range of lenders with whom they exclusively work. Those lenders have limited exposure to competition, so they can charge higher fees and rates. Do your own comparison-shopping; dealer rates can be 1 to 1.5% higher than those offered at other lenders, like your credit union.
If you didn’t shop around for a loan when you bought your car, it’s worth doing now. A better rate could be waiting for you.
Your financial situation may have improved since you got your loan, and you can now afford to pay more per month. Shorter-term loans usually have lower interest rates, and you’ll pay off the overall balance on your car or home faster.
If money is tight, consider refinancing for a longer term. Although you’ll pay more in interest in the long run, you’ll reduce your monthly payment to save money for a more immediate goal. You may also be able to reduce your monthly payment if your credit score has improved, interest rates have dropped, or if you’re getting a better rate.
Whether you want to refinance your home, car, or other loan, Alaska USA is here to help navigate the process.
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