When Should You Refinance Your Car Loan?

Posted by on August 28, 2019 @00:30:05 EDT


One of the most surprising things about car loans is the fact that, contrary to popular opinion, they’re actually not set in stone. We know it can look pretty permanent, especially when you’re at the dealership, pen in hand, ready to get your name down onto the paperwork, but it’s just not the case. As a matter of fact, working out a new deal for your car financing in Toronto can often be a good financial decision, making the entire area well worth looking into, no matter what state your affairs are currently in.

In order to get a grip on how exactly this is possible, it’s important to have a thorough understanding of exactly what your car financing plan in Toronto actually means. It’s not something permanent, and can often be renegotiated relatively easily as long as you know what you want to get out of the discussion process, and if you’ve got all of your ducks in a line; but we’ll get to the nitty-gritty of the whole thing further on in this article.

For the moment, what you need to know is that a car loan, like any loan you can possibly sign up for, is just a way of paying back money that was leant to you in order to purchase an item. It’s common knowledge that very few of us can save up enough money to pay for car financing in Toronto upfront, which is where dealerships come in, and why payment schemes are even a thing in the first place.

Why It Can Be A Good Idea To Consider Refinancing

Somebody sitting at a desk, working on their laptop, with a pen, paper, and coffee mug beside them.

Even though the car financing in Toronto you initially organized for yourself may have looked great at the time, there’s no reason to think you couldn’t arrange yourself a better deal with some careful planning and a little foresight. As it happens, your original payment plan may have in fact been fantastic—we’re not going to try and pull the wool over your eyes and say that it’s impossible you could have gotten a great deal right off the bat.

However, even if it was great, you might want to consider working towards car financing in Toronto because of one of a few different reasons. The first, and most obvious of these, is that your credit score has drastically improved since you signed the initial deal. This could be as a result of your having performed credit repair techniques on your score, or it could just be because of some more nebulous changes in the way your repayments were being handled—but no matter why your score improved, there’s no doubt that you’ll be able to get a better deal for yourself with the new score.

In the following article, we’ll be discussing when it’s a good time to consider refinancing your car loan in Toronto. People come to us all the time with questions about exactly this topic, so we figured it was about time we put together a comprehensive guide on knowing when the time is right to pull the trigger on the new deal.

In order to do that, however, we first need to develop a basic understanding of how your credit score affects the loan you’ll be able to get, because that will help you to work out when it’s worth your while to renegotiate the deal. Basically speaking, your credit score affects the car financing in Toronto you’ll be able to arrange for yourself in two major ways. By taking these two things into account, you’ll have an easier time working out when is the right point to go and actually start negotiations for a new financing plan.

How Credit Affects Loans

Somebody paying for something using their credit card.

Interest Rates

The first of these is interest rates. Technically speaking, money paid in interest doesn’t actually go towards the value of the car you’re trying to buy. It’s a way of paying off the risk the dealership is incurring by taking you on for a car financing plan in the first place. After all, the worse your score is, the worse you have historically been at keeping to your financial commitments.

Unfortunately, it doesn’t matter whether that’s because you really were responsible, or whether it was because you were a victim of identity theft. It all counts the same in the calculation of your score. As such, a lower score will require higher interest rates, because it’s a riskier proposition for the lender.

Loan Terms

The other main way your credit score will affect the kind of car financing in Toronto you’ll be able to secure approval for is the actual length of the loan itself. A longer-term loan, while it will involve lower monthly payments, isn’t always the best option.

This could be for a few different reasons, but the most common and easily-imagined one is that if you have some sort of accident in your car, and you need to stick it into a mechanic’s shop. You’ll essentially be paying money towards the upkeep of an item you don’t even own, which is obviously not ideal for anybody’s financial health.

When Should You Try For A New Deal?

With that out of the way, we can get going on the main question—when is it worth trying to renegotiate your car loan? As a matter of fact, refinancing your car loan in Toronto is a lot like refinancing your home, or trying to get a better deal on your credit card from your supplier. As it happens, both of those things are usually more complicated than coming up with a new car financing plan in Toronto.

One of the first main decisions you’ll need to make throughout this process is deciding between whether you’re going to try and renegotiate with your current lender (i.e., the dealership that approved you for the loan in the first place), or whether you want to take your custom elsewhere.

It can seem a little counter-intuitive, but there actually isn’t anything in place to prevent you from shopping around. You don’t have a legally binding commitment to your dealership for life—you signed a paper contract, not one made out of stone, after all. And when it comes to working out the best possible car loan refinancing plan in Toronto, it’s of vital importance for you to give yourself as many options as possible. At the end of the day, you’re the one who’s going to be stumping up the cash, and if you’ve got a better score, why not make the most of it?

There’s another major advantage to doing a bit of window shopping with regards to different dealerships for a re-negotiated loan. By showing your dealership that you’re not afraid to cut ties and go elsewhere, you’re basically encouraging them to consider offering you a better deal. They won’t want to lose your custom unless they absolutely have to, and this can be a really easy, no-questions-asked way of making sure that you’ll get an improved offer right away.

You should consider renegotiating your car financing in Toronto in one of the two following situations. Either your credit score has improved since you first signed the deal, or your financial situation has improved in some other way. For example, imagine you found a huge bag of money lying on the side of the road.

Assuming there’s no incentive for you to return the money (and it can be morally appropriate for you to keep it: let’s say it was addressed to you, personally), we could easily picture a situation whereby you suddenly have a lot more disposable income to spend on monthly car repayments. In this case, renegotiating your car financing plan in Toronto could chop months off of your overall agreement, proving beyond any shadow of a doubt that it can be worth renegotiating even if your credit score has remained largely the same.

Get Your Affairs In Order

Before you decide to go shopping around for a new dealership, though, you’ll need to get a few of your own personal financial affairs in order. Not only will this cement your image as somebody who is serious about their finances (and as such someone worth taking seriously at the negotiating table), this will also make sure that you can safeguard yourself against any predatory deals ahead of time, by having it written down as clearly as possible exactly what your budget is.

Creating a budget sounds awful, but it really doesn’t have to be all that painful. It can be as simple as doing a few calculations, and shouldn’t take longer than an afternoon at the very worst. Here’s a great resource on how to go about dividing up your incoming and outgoing cash flow in order to keep things as organized as possible.

Another box you’re going to want to tick is the mechanical health of your vehicle. The better the shape your car is in, the better the deal you’ll be able to secure yourself. Money spent on making sure your automobile runs properly is going to pay dividends over the next several months, since a healthier car will command better interest rates, since the product you’re trying to secure financing for is a more valuable item, all told.

Don’t forget to give your set of wheels a good cleaning, as well, and make sure not to neglect the interior. Too often people focus on buffing up the paintwork, only to collapse internally when the dealership salesperson decides he wants to have a look around inside. The key is to make your vehicle as valuable as possible, since that’s the best way to secure an optimal car loan refinancing plan in Toronto for yourself.

After that, take it to get a thorough cleaning, inside and out. While this sounds superficial—and is, in all honesty, superficial—it’s going to make a major impact on the appraised value of the car, which in turn is going to directly affect how much of an improvement the new financing scheme will present over the original car loan in Barrie.

Lastly, check your credit score. This is easy to do for no cost, since you’re entitled to free reports from each of the main credit bureaus. We’d usually recommend spacing the reports out throughout the year in order to give yourself the best possible overview of your financial situation, but when it comes to refinancing your car, you can probably allow yourself a check specifically for that purpose.

If you know your credit score inside out, you’ll be protecting yourself from potentially being offered a sub-par deal. Too often, dealerships assume people don’t have enough information about their own affairs to be able to compete at the negotiation stage. Don’t fall into this trap—you and your car both deserve better, so make sure you know as much as possible.

In Summary

There you have it: when to renegotiate your car financing in Toronto, as well as a few tips on how to actually go about the process of securing approval for a new deal. Don’t forget to shop around, even once you’ve gone through the other steps of cleaning and repairing your vehicle, checking your credit score, and making a budget.

If you got a kick out of this piece, be sure to check out the rest of our blog. We keep it updated with all of the latest tips and tricks in the automobile industry. By the way, if you’ve been having a hard time securing approval for a car loan because of a bad credit score, why not give us a call here at autoloans.ca? We consider every single application we receive, irrespective of score, so we just might be able to help you out.

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