Should I Refinance My Car in the midst of a recession? Advertiser disclosure You're our first priority. Everytime. We believe that everyone should be able make financial decisions without hesitation. While our website doesn't contain every company or financial product available on the market however, we're confident of the guidance we offer as well as the advice we provide and the tools we develop are objective, independent easy to use and cost-free. So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site) however it does not affect our suggestions or recommendations, which are grounded in hundreds of hours of study. Our partners are not able to pay us to guarantee favorable review of their services or products. . Should I refinance My Car in a recession? If you're looking to save money and improve your credit score, refinancing your vehicle 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 to a bank marketing department. She worked for the next 30+ years as a writer and content manager in the financial services industry and created educational content that covered a wide spectrum of personal and business financial issues. After being a frequent NerdWallet user for a long time, Shannon welcomed the opportunity to join the NerdWallet team as a writer and assist more people in financial decisions. Shannon is located at Newburgh, Indiana. Dec 1st, 2022 Written by Julie MyhreNunes, Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes works as the assistant editor assigned to assigning for NerdWallet. She has worked in the personal finance space for over ten years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been highlighted in Forbes, The Boston Globe and CNBC through the years. Julie's writing has been published by USA Today, Business Insider and Wired Insights, among others. Email:
. A majority or all of the products we feature are made by our partners who pay us. This affects the products we feature and where and how the product is featured on a page. But, it doesn't influence our opinions. Our views are our own. Here's a list of and . Refinancing your car in an economic downturn could be a great idea, but your personal situation will determine whether auto refinancing makes sense for you. A recession, described by the National Bureau of Economic Research as a major decrease in economic activity that is spread across the economy and lasting more than a few months -- isn't good news for consumers or businesses. According to the traditional definition, there is no evidence that the U.S. isn't currently in the middle of a recession. In a recession, cuts can lead to higher unemployment, reductions in employees' hours, and loss of income. In the end, numerous people need to find ways to reduce monthly household expenses, to decrease the monthly cost. Is it possible to lower the amount of your car loan in a downturn? If you're able to refinance to take over the current automobile loan with one that has an interest rate that is lower or a longer repayment period, it's possible to reduce a car payment regardless of whether it's a recession or not. recession. Lowering your interest rate Leading to a recession and occasionally early in a recession, interest rates rise. In order to reduce inflation and increase consumer spending to reduce spending, the Federal Reserve increases the federal funds rate, which influences various rates like automobile loan rates. After an economic downturn rate of interest, they tend to drop to encourage consumers to invest more. If you had financed a vehicle in the lead up to a recession you could be eligible to refinance it to a lower rate and reduce your payment later in a recession. This is especially true if you agreed to a high rate with a dealer and you could have qualified for lower rates. Also, if you were offered an unfavourable rate due to poor credit but have since made improvements to your credit. As is always the case you should shop for loans to secure the lowest rate. Extension of your auto loan term Another way to cut down on monthly costs is to refinance your remaining loan balance to extend the loan duration. This isn't usually the best method because you'll have to pay more interest and more in total over the course of the loan. However, it's more secure than not paying your bills or in default on the loan and getting your car confiscated. You can utilize NerdWallet's tool to assess your current auto loan and refinance loan options. A calculator will show how changes in rate and term will affect your monthly payments, with the amount refinancing could cost or save you all in all, including interest. Additionally, don't forget to take into account any fees associated with it, such as loan origination costs, lender processing fees and fee for transfer of title. Though it's not uncommon, you may also have a prepayment penalty for the current loan. There are a few reasons not to refinance your auto in a downturn In addition to looking at the rate of interest and terms, here are other factors to take into consideration when deciding to refinance your vehicle. In the event of a negative equity before the recession, prices are exaggerated. During a recession price drops. If you paid and financed an inflated price for your car, and its value decreases and you end up paying more than the car is worth or being . While many lenders will refinance more than the car's value in book, it might not be enough to cover the entire amount. To refinance, you might need to pay the additional amount from your pocket, which could be difficult in the event that the finances of your household are strained. Another option is to roll the difference into your new refinance loan however this could increase the amount of your loan and cost you more in interest in the future. Your current financial situation If you've lost income or gotten behind on payments on your car or other debt, it will be more difficult to locate a refinance loan to help improve your situation financially. However, lenders tend to tighten credit requirements during the economic recession, which means the only refinancing loan you qualify for could be one with a higher interest rate and with a longer duration than the current loan. Speak to your current lender prior to deciding to get in debt on your loan if you can't refinance it or if it won't make a difference to you financial position. Some lenders offer hardship programs to help borrowers who are struggling to make payments. Deciding whether auto refinancing is the right choice, whether the economy is in a recession or not, there are a few basic steps to take when deciding whether you want to refinance your vehicle. Consider the reason you're refinancing. If you're looking to eliminate a co-buyer from an auto title or because you received a raise and want to shorten the term to pay off your loan earlier The decision on refinancing will be relatively easy. However, if you're refinancing to ease financial strain, you should put more thought into your choice and weigh the pros and cons of auto refinancing. Consider, for instance, is the amount you save outweigh the expense of refinancing? Can refinancing -- even if you pay more interest over the long term reduce your monthly payments enough to prevent you from owing the loan? In a financial emergency is cash-back refinancing for your car a good option? be less expensive than a payday loan or other short-term loan options? Consider comparing the options regardless of the reason why you'd like to refinance your vehicle, shop several refinance lenders, compare offers and find the most affordable interest rate and the shortest time. Enter the numbers into an auto refinance calculator, and be aware of the total price before you decide whether auto refinancing even in a recession -- makes sense for you. Author bio: Shannon Bradley covers auto loans for NerdWallet. She has spent nearly 30 years working in banking as a writer of financial education content. In a similar vein... Get even deeper into auto Loans Make smarter money moves delivered direct to your inbox. Sign up and we'll send you Nerdy content on the topics in finance that are important to you and other strategies to get more from your money.

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