Do I need to refinance my car in the midst of a recession? Advertiser disclosure You’re our first priority. Each time. We believe that every person should be able to make financial decisions with confidence. While our website doesn’t include every financial or company product that is available however, we’re confident that the advice we provide as well as the advice we provide and the tools we create are independent, objective easy to use and free. So how do we make money? Our partners compensate us. This can influence the products we write about (and the way they appear on the website) however it does not affect our recommendations or advice, which are grounded in thousands of hours of research. Our partners are not able to promise us favorable reviews of their products or services. . Should I refinance My Car During a Recession? If you’re trying to find ways to reduce expenses, refinancing your car during the recession could be beneficial. Written by Shannon Bradley Lead Writer | Car buying, personal finance, loans Shannon Bradley covers auto loans for NerdWallet. While attending college to earn the degree of a journalist, Shannon completed an internship which led her not to the newsroom, but rather to a bank’s marketing department. She spent the next 30-plus years as a writer and content manager within the financial services industry, creating educational content that covered a broad range of personal and business financial subjects. After being a frequent NerdWallet user for several years, Shannon welcomed the opportunity to become a writer for NerdWallet and assist more people in financial decision-making. Shannon is based in Newburgh, Indiana. Dec 1 2022. Editor: Julie Myhre-Nunes Assigning Editor Auto loans, consumer credit Julie Myhre is an assistant assigning editor at NerdWallet. She has been working in the area of personal finance for over 10 years. Prior to becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been highlighted on Forbes, The Boston Globe and CNBC throughout the years. Julie’s writing has been published through USA Today, Business Insider and Wired Insights, among others. Email:
. A majority or all of the items featured here come from our partners, who pay us. This impacts the types of products we review and where and how the product is featured on the page. But, it doesn’t influence our evaluations. Our views are our own. Here’s a list of and . Refinancing a car during a recession could be a smart option, however, your personal circumstances will determine if auto refinancing makes sense for you. A recession is described according to the National Bureau of Economic Research as a significant decrease in economic activity that is spread throughout the world and lasting longer than a few months — is never an ideal situation for companies or consumers. Based on the standard definition it is true that it’s not a recession in the U.S. isn’t currently in the middle of a recession. When there is a recession, reductions can result in more unemployment, less employee hours and lost income. In the end, numerous people need to look for ways to cut back on monthly household expenses, to lower their monthly payments. Are there ways to reduce the cost of car loans in a downturn? If you are able to refinance and replace your current auto loan with one that has a lower interest rate or a longer repayment time you can reduce a car payment whether you’re in a recession or not. recession. Lowering your interest rate Leading into a recession, and occasionally early in a recession, interest rates increase. To ease inflation and decrease consumer spending, consumers are able to spend less. Federal Reserve increases the federal funds rate, which drives other rates , such as automobile loan rates. Later in the recession the interest rates tend to decrease to encourage consumers to invest more. If you financed a car in the lead up to a recession you were in a position to refinance your loan to a lower interest rate and lower your monthly payment in a downturn. This is especially true when you signed up to a high rate at a dealership and may have been eligible for a lower rate. If you’ve been offered a high rate because of low credit score, but you have since improved your credit. This is the norm it is important to look around for loans and to get the lowest rate possible. The extension of your auto loan term is another way to reduce your monthly payments is to refinance your remaining loan balance to extend the loan term. This isn’t always the best option because you’ll be paying more interest and pay more in total over the course of the loan. It’s nevertheless more secure than not paying your bills, in default on the loan and having your car confiscated. You can use NerdWallet’s to compare your existing auto loan and refinance loan possibilities. A calculator will show how the changes in rate or duration will impact your monthly payment, along with how much refinancing will cost you or help you save overall, which includes interest. Additionally, don’t forget to think about any associated fees, such as loan origination costs as well as lender processing fees and fees for title transfers. Though it’s not uncommon, you may also have a prepayment penalty for your current loan. The reasons to not refinance your car in a downturn In addition to looking at the rate of interest and terms there are additional factors to consider when deciding to refinance your car. In the event of a negative equity before the recession, prices are overinflated. In a recession price drops. If you paid and financed an overpriced vehicle, and the value starts to drop, you could end up owing more than your car is worth or being . Many lenders will offer refinancing more than the car’s car’s book value, it may not be enough for refinancing the entire amount. To refinance, you might need to pay the extra amount out of your pockets, which can be difficult if the finances of your household are stressed. Another option might be rolling the difference into your new refinance loan, but this will increase the amount of your loan and result in higher interest in the future. Your financial situation if you’ve lost money or are behind on payments for your vehicle or other debt It will be more difficult to get an opportunity to refinance your loan to improve your financial situation. But, lenders are known to increase their credit requirements during recessions, and your only possible refinancing loan you qualify for could be at a much higher interest and with a longer duration than the current loan. Contact your current lender before you get behind on your loan in the event that you aren’t able to refinance or if refinancing won’t improve you financial position. Some lenders offer hardship programs to help borrowers who are having difficulty making payments. Identifying whether refinancing your car is the best option, regardless of whether the economy is in downturn or not, you must follow a few basic actions to consider before deciding to refinance your car. Consider the reason you’re refinancing. If you’re looking to remove a co-buyer from a car title or you’ve received a raise and want to cut the length of the loan in order to pay off your loan sooner the decision to refinance is likely to be fairly straightforward. On the other hand when you’re looking to refinance to ease financial strain, you should put more thought into your decision , and consider the pros and cons of auto refinancing. For instance, does the amount you save outweigh the cost of refinancing? Refinancing, even if you pay more interest over the long term — lower your payment enough to stop you from owing the loan? If you are in a crisis is cash-back refinancing for your car a good option? be cheaper than an payday loan or other short-term loan alternatives? Be sure to evaluate the alternatives irrespective of why you want to refinance your vehicle look at a variety of refinance lenders to compare their offers and locate the lowest interest rate with the shortest time. Enter the numbers into an auto refinance calculator and be aware of the total cost you’re committing to before you decide whether refinancing your car with auto financing even in a recession — makes sense for you. Author bio: Shannon Bradley covers auto loans for NerdWallet. She has spent nearly 30 years in banking as a journalist for financial education content. In a similar vein… Explore even more deeply in auto Loans Get more smart money moves – direct to your inbox. Sign up and we’ll send you Nerdy articles about the financial topics that matter most to you along with other ways to help you make more value from your money.
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