One of the best feelings is getting a new BMW and enjoying it. Sometimes, though, for one reason or another, you might find that refinancing is on your mind.
People refinance their auto loans all the time for a variety of reasons, including freeing up some money each month to put toward other expenses.
Here are some things to expect if and when you decide to refinance your BMW.
Why Would You Refinance a Car Loan?
There are several reasons why people refinance, and everyone’s situation is different. Some of them include:
- Lowering your monthly payment
- Reduce the loan’s interest rate
- Changing your loan’s terms
- Buying out a current lease
- Setting up an extended warranty
- Various other reasons
Whether you’re looking to add an extended warranty or lower your monthly payment, there are options. And in some cases, you can reduce your payments to as low as $150 a month. Regardless of your situation, there’s an answer to when and why you should refinance.
When Is a Good Time to Refinance?
Is now a good time for you to refinance? This is a big decision and requires as much information as possible to make it a sound one. There are four primary indicators that now might be a good moment to make this decision.
Interest Rates Have Dropped
If interest rates have dropped for some reason by 2-3 percent since you received your car loan, it might be a good idea to refinance. A small percentage might not sound like much, but it can add up over the life of the loan. You can check periodically with your bank or look online to see current rates.
Your Financial Situation Has Improved
When your financial situation improves is another good reason to refinance. Two of the primary factors in deciding an auto loan rate include your credit score and your debt-to-income (DTI) ratio. If either or both of those factors improve, it could benefit you by leading to favorable terms for a refinanced loan.
You Didn’t Get the Best Offer Initially
Even if interest rates have stayed the same or your financial situation has remained the same, refinancing might still be a good option if you feel you could have received a better offer. If the offer you got was at 7 percent for one lender and others were lower, it might be a good idea to refinance.
You’re Having Trouble Keeping Up With Bills Each Month
One final time it might be good to refinance is if you are having trouble paying bills every month. Even if you cannot secure a lower interest rate or get the exact terms you want, it may still be beneficial to increase the length of your loan to reduce the cost of each monthly payment.
If you had a great offer on the original loan and are still struggling to make ends meet each month, you can consider negotiating on the original loan. This option increases the length of time you spend paying back your loan and increases the amount of interest you pay.
When Is a Bad Time to Refinance?
There are also times when you should not attempt to refinance your BMW. Again, four primary reasons determine whether it’s time to hold off or act.
You’ve Already Paid Off Most of the Original Loan
If you are nearing the end of your original loan, it might be best to hold off on refinancing if at all possible. Receiving a new loan will most likely increase the amount of interest you pay, since interest tends to be front-loaded.
Your Car Is Old or Has a High Amount of Miles
Cars depreciate exponentially once they are purchased. The likelihood of refinancing your car will decrease as it gets older and up in miles. Different lenders set rules on the age and mileage of the vehicle.
Fees Outweigh the Benefits of Refinancing
It is essential to read your initial loan agreement and check if any fees are associated with refinancing or making early repayments before your planned term. This could backfire and increase some of the cost in interest and the principal balance. Explore the expenses before planning to refinance.
You’re Looking to Apply for Credit Again Soon
If you plan to apply for credit again in the near future, refinancing is not the option for you. It negatively impacts your credit, and if you have plans to apply for a mortgage, loan, or credit card, refinancing might need to wait.
Refinance to Benefit Yourself
If you spent the time to find your dream BMW and purchase it, you should get to enjoy it. Think about refinancing if you want some benefits that can make your life a little easier. No matter the reason, just make sure you are informed about the decision you are making.